Press Release No. 25/070

IMF Executive Board Concludes 2025 Article IV Consultation with Belgium

March 20, 2025

Washington, DC: On March 18, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belgium, and considered and endorsed the staff appraisal without a meeting.^[1]

The Belgian economy was resilient to a series of shocks, but growth has been slowing, and core inflation remains persistent. Labor productivity growth remained sluggish, and labor-cost competitiveness has declined. Successive shocks have increased structural fiscal deficits and public debt. Risks arising from deepening geoeconomic fragmentation and intensification of regional conflicts affecting energy, trade and financial spillovers could worsen the outlook. 

Executive Board Assessment^[2]

In concluding the 2025 Article IV consultation with Belgium, Executive Directors endorsed staff’s appraisal, as follows:

Notwithstanding its resilience, the Belgium economy faces significant challenges. In the short term, in an increasingly uncertain environment, policies need to see disinflation through while preserving growth and financial stability. From a longer perspective, policies need to rebuild buffers, reduce vulnerabilities associated with high and rising public debt, address spending pressures from aging and the green transition, foster higher growth, and improve the external position which, in 2024, was weaker than implied by medium-term fundamentals and desirable policies based on preliminary assessment. The policy agenda of the new government, which includes significant structural reforms and fiscal consolidation, is an opportunity to make headway. Steady and timely implementation of intended reforms will be key.

Sustained and significant fiscal consolidation is needed. Considering the magnitude of the needed adjustment to bring the deficit durably below 3 percent of GDP and put debt solidly on a downward path, staff supports the government’s intention to pursue a seven-year adjustment under the EGF, which should be accompanied by credible and front-loaded growth-enhancing reforms. An annual reduction in the structural primary balance of about 0.6 ppt of GDP until 2031 will be necessary. The forthcoming MTFSP should be built on sufficiently conservative assumptions to lower the risk of deviating from the intended path of deficit reduction.

The adjustment should rationalize current spending, make room for more public investment, and be supported by increased efficiency of spending. Rationalizing social benefits and the public wage bill is crucial to achieve savings. Public investment should be preserved, or ideally, increased to bolster potential growth and support green transition. Amid competing demands for resources and reduced fiscal space, improving the efficiency of spending, is critical, notably with respect to investment in infrastructure, healthcare, and education.

Fiscal reforms are crucial to support the adjustment. Staff welcomes the government’s intention to reduce the tax burden on labor while introducing capital gain taxation and reducing tax expenditure. Considering the needed overall fiscal adjustment, tax reforms should not result in lower revenue. Similarly, staff welcomes the planned reforms aimed at raising the effective retirement age and reviewing eligibility to specific pension regimes. This is necessary to preserve the sustainability of the pension system despite aging. Staff also encourages the authorities to strengthen the overall fiscal framework, through a revitalized fiscal council and greater accountability of the federal and all federated entities in sharing the burden of fiscal adjustment.

Overall systemic risks in the financial sector remain moderate and current capital buffer requirements and prudential limits on mortgage loans should be maintained. Recent progress in strengthening systemic risk assessment, supervision, the macroprudential framework, and crisis management and resolution preparedness is welcome. With a new government in place, pending measures that required legislative action should now proceed.

Labor market and education reforms are essential to foster higher labor participation and better adequation of skills. The government’s intended reforms to widen the income gap between work and nonwork, limit the duration of unemployment benefits, and reduce the cost of hiring and dismissal go in the right direction. Fostering a labor market more inclusive of low-skilled workers, older workers, women, and individuals with an immigration background, or disabilities, notably through lifelong learning and reskilling and active labor-market policies, will enhance overall economic performance. Education reforms are also necessary to upskill the labor force. They should focus on aligning curricula with the skills companies need, better leveraging teachers’ time, and strengthening support to students in difficulty.

Reforming the wage-setting mechanism will help increase labor-market efficiency and improve competitiveness. Automatic wage and social benefit indexation protected household purchasing power during the inflation shock but increased fiscal deficits and undermined competitiveness. Consideration should be given to abolishing automatic indexation and the 1996 wage law which, together, prevent an optimal allocation of labor and higher employment. At a minimum, the labor market would already benefit from technical reforms to the existing system.

Further product market reforms and efforts with EU partners to deepen the single market and advance the capital market union will support firms’ productivity. Reforms should focus on reducing regulatory and administrative barriers and improving the insolvency regime. Removing remaining barriers to trade within the EU and harmonizing regulations and bankruptcy frameworks would give Belgian firms’ access to a larger customer base, improve competition, and provide buffers against risks from geo-fragmentation. Developing venture capital at the EU level would help widen Belgian firms’ options to finance their growth.

Despite progress, much effort remains needed to achieve climate objectives. The planned expansion of the EU ETS should be complemented by carbon taxation and the phasing out of fossil fuel subsidies, while ensuring support for vulnerable population. The consolidation of federal and regional climate efforts into a coherent and cohesive national strategy is essential.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.