Federal and regional elections on 9 June saw the conservative nationalist N-VA secure 24 seats in the Chamber of Representatives, followed by the far-right nationalist Flemish Interest (Vlaams Belang) and the Francophone, economically liberal Reformist Movement (MR), each with 20. MR and the Francophone centrist party Les Engagés (LE) saw the largest gains, of six and nine seats, respectively.
The Flemish centre-right Open Vld, the party of outgoing Prime Minister Alexander de Croo, Francophone green party Ecolo, and Francophone social democrats PS lost seats, and have said they will not join a federal coalition government. Excluding these parties, Vlaams Belang and the Marxist PVDA/PTB, the remaining parties hold 88 seats, with 76 needed for a majority. We expect the agreement among more mainstream parties (including N-VA) not to cooperate with Vlaams Belang to hold.
N-VA’s Bart De Wever has said he expects a coalition agreement “within weeks” but we see challenges to this. A majority government would have to include a diverse range of parties. Notably, the social-democratic Vooruit is ideologically distant from the other parties that performed well in the election, particularly N-VA.
N-VA’s proposals to arrest the growth of Belgium’s fiscal deficits focus on incentivising work and reducing administrative costs. The Federal Planning Bureau (FPB), required by law to estimate the impact of electoral programmes on public finances and economic growth, estimates that N-VA’s plan could narrow the fiscal deficit to 3.6% of GDP by 2029 from 4.4% in 2023, compared with 5.6% in a no-policy change scenario.
However, FPB estimates for likely coalition partners, such as MR and the Flemish Christian Democrats (CD&V), show large increases in spending, with the deficit increasing to 7.6% and 6.4% of GDP by 2029 under MR’s or CD&V’s programme, respectively.
Agreeing a broad fiscal stance and specific policy measures for a coalition government therefore looks challenging, especially given ballooning ageing costs and high inflation indexation. More than half of Belgium’s expenditure on public wages, pensions and other social benefits is subject to automatic indexation to the so-called health index, which has recently exceeded HICP inflation (a proxy for revenue growth). Ageing, according to the FPB, will add around 0.3% of GDP to expenditure annually. In a no-policy change scenario, it forecasts general government debt reaching 117.3% of GDP in 2029 from 105.2% last year.
The European Commission on 19 June recommended launching an excessive deficit procedure against Belgium, and N-VA’s ambitious 2029 3.6% of GDP deficit target still falls short of the Stability and Growth Pact’s 3% threshold. New spending pressures may arise, for example on defence. In 2023, the country spent 1.2% of GDP on defence, well below the 2% NATO target.
Political fragmentation and Belgium’s complex institutional accommodation of regional and linguistic divisions often lead to lengthy federal coalition talks. Day-to-day governing is typically handled by a caretaker government, but its limited powers would delay fiscal consolidation measures if negotiations re protracted.
The Negative Outlook on Belgium’s ‘AA-’ rating reflects the risk that fiscal consolidation is insufficient to achieve debt stabilisation over the medium term. A failure to reduce deficits and a continued rise in debt/GDP could lead to a downgrade.
Pre-election polls had predicted victory for Vlaams Belang, which advocates a break-up of Belgium into Flanders and Wallonia. The party performed less well than expected, and the two separatist parties fell one seat short of a majority in the Flemish Parliament, reducing the near-term likelihood of moves towards Flemish independence. However, N-VA advocates transferring even more powers to regions.
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