Belgium’s Debt Outlook Revised to Negative by Fitch on Political Stalemate
Belgium had the outlook on its debt rating lowered to negative at Fitch Ratings, which joined Standard & Poor’s in saying that political deadlock complicates efforts to cut the euro area’s third-highest debt load.
Fitch may cut Belgium’s AA+ rating, the second-highest investment grade, should the country fail to adhere to its deficit targets, it said in a statement today. Belgium needs to reduce its budget deficit to less than 3 percent of gross domestic product next year and balance its books by 2015, as agreed with the European Commission.
A caretaker administration has ruled Belgium since elections last June as north-south tensions in the linguistically divided nation led to the longest postwar political stalemate in Western Europe. A strengthening economic recovery has helped shrink the deficit to an estimated 3.6 percent of GDP this year from 5.9 percent in 2009, though reducing the debt will require political resolve, Fitch said.
“Sustained debt reduction will require fiscal reform as well as fiscal discipline over the coming years, which in turn requires a new government with a fresh mandate,” Douglas Renwick, a credit analyst at Fitch in London, said in the statement. “Despite the ongoing political dispute, day-to-day fiscal management has remained strong, in keeping with Belgium’s high-grade rating.”
2011 Budget
Prime Minister Yves Leterme’s caretaker government received parliamentary backing last week for a 2011 budget that aims to shrink the deficit from last year’s shortfall of 4.1 percent. Belgium’s debt load swelled to 96.8 percent of GDP at the end of 2010 from 96.2 percent a year earlier. That’s the third-highest among the 17 nations sharing the euro, behind Greece and Italy.
The extra yield investors demand to hold Belgian 10-year bonds instead of German equivalents widened to as much as 127 127 basis points earlier today, the highest level in more than four months. The so-called spread, which averaged 89 in the past 12 months, reached a euro-era record of 144 on Jan. 11.
Belgium raised 3.39 billion euros ($4.76 billion) from four auctions of bonds today, the most in 11 months, as demand for the securities increased and yields fell from the previous auction a month ago. After five months, the nation has raised 63.4 percent of its full-year target and needs to raise an average of 2.08 billion euros from the remaining six scheduled bond sales to reach its target of 34 billion euros.
Deficit Outlook
The deficit may start widening again next year because of rising borrowing costs, according to the Federal Planning Bureau, which on May 12 forecast a 2012 shortfall of 4.4 percent and expects the nation’s debt load to peak at 98.3 percent of GDP in 2013. The European Commission forecasts Belgium’s deficit will widen to 4.2 percent next year.
Elio Di Rupo, the leader of the French-speaking Socialists who’s assigned by King Albert II to form a Belgian government, tomorrow begins meeting leaders of the nine parties involved in talks on how to balance the budget by 2015. That will require structural spending cuts or tax increases of at least 17 billion euros, Di Rupo said on May 17, citing the planning bureau.
Belgium already faced a rating-cut threat by S&P, which on Dec. 14 said it might reduce Belgium’s ranking as soon as next month should the yearlong political impasse mean Belgium can’t “stabilize its debt.”
Belgium last had its credit rating lowered in December 1998 by Fitch, which at that time cited the risk of a liquidity crisis following the creation of the European Monetary Union. A rating cut may have more effect now because of the country’s rising dependence on foreign rather than Belgian investors.
Foreign ownership of the nation’s bonds and treasury bills increased to 71.2 percent from 59.6 percent in the past decade, according to central-bank data.
To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net
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