Belgium: Stable Rating, Unresolved Fiscal Challenges

(MENAFN- ING) No rating change for now

As expected, S&P affirmed Belgium's sovereign credit rating at AA-, with a stable outlook (a relief given the current budgetary challenges). It remains the only one of the three major rating agencies to place Belgium in the double-A category. The rationale is unchanged: Belgium's economy remains resilient and diversified, while the government's efforts to contain the widening fiscal deficit and the Federal Debt Agency's strategy of extending debt maturities also support the rating. Yet these factors will not be enough to bring down the deficit, which will struggle to fall below 5% of GDP, or stabilise the debt-to-GDP ratio.

In the near term, S&P doubts that the federal government can finalise its 2027 budget on time. The precedent is hardly reassuring: the 2026 budget was only finalised in March 2026.

The clock is ticking

That brings us back to the ongoing coalition talks. The parties had agreed to negotiate a €10bn savings package to be implemented over the next three years, avoiding difficult budget negotiations too close to the next election campaigns. As elections approach, parties typically find it harder to compromise or concede ground on policies that are important to their voters.

As we noted in our previous article, talks stalled over a proposed VAT increase, with one coalition party firmly opposed. To break the deadlock, Prime Minister Bart De Wever put forward two proposals. First, focus initially on the 2027 budget alone. Second, agree on a fallback package of emergency measures, mainly a freeze on automatic income indexation, to take effect in 2027 if no alternative agreement is reached. This would have helped prevent further fiscal slippage and allowed the government to enter 2027 with a budget framework, rather than having to extend the 2026 budget at the last minute.

Coalition partners rejected both proposals. Last week, they returned to the negotiating table to seek agreement on the full €10bn savings package originally envisaged. This could be read as a positive sign: a shared willingness to put public finances on a sustainable path and demonstrate that Belgium can still make decisions, in contrast to France's partisan divisions and political uncertainty.

But a deal remains elusive, with each party holding to mutually incompatible red lines. This week could therefore prove decisive. An agreement would give Belgium a budget for 2027 and a clear fiscal roadmap for the years ahead, sending a strong signal to financial markets. If talks drag on, however, finalising the budget before year-end will become difficult, as S&P warns. Tensions could then intensify, as the prime minister has ruled out entering 2027 without a budget. We will be watching the negotiations closely. The stakes extend beyond the budget: in an increasingly nervous bond market, government credibility is crucial.

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