The Belgian public debt has increased to 515 billion euros in 2020 (almost 50 billion euros more than in 2019). That corresponds to a debt ratio of 114.1 percent of gross domestic product (GDP), the highest percentage since 1999. But the debt is still sustainable, the Federal Debt Agency emphasized when presenting its annual report.
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The reason for the increase is not far to seek: the coronavirus. The Belgian economy entered a recession and GDP declined by 6.3 percent. In addition, there was a large budget deficit, a result of the many measures that governments took to mitigate the impact of the corona pandemic. As a result, the debt ratio, which had fallen below 100 percent of GDP in 2019, rose to 114.1 percent of GDP.
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That is not a drama, according to the agency. “The current situation, in which government debt interest rates are below nominal GDP growth, greatly improves the sustainability of government debt,” the annual report said. “The fundamental question is therefore whether interest rates on government debt will remain lower in the future.”
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“It was a particularly difficult and challenging year”, said Minister of Finance Vincent Van Peteghem (CD&V), who was present at the presentation of the annual report. “We have put in a lot of effort for families and entrepreneurs in a year of uncertainty.”
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The minister also does not see any problems for the government debt in the short term. The corona measures, which cost a lot, will be phased out and strong economic growth is expected. For example, the National Bank assumes 5.5 percent economic growth this year and 3.3 percent in 2022. At the same time, interest rates on debts remain low. The National Bank therefore expects the government debt to fall somewhat this year (to 112.8 percent), although the agency itself predicts a further increase to 116 percent of GDP.
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Long-term
In the longer term, it must of course be the intention to bring the debt ratio down, Van Peteghem also said. “Economic growth will not remain as high as this year and next, and interest rates will start rising at some point,” the minister said. “We need to keep growth sufficiently high, but the long-term debt (with low interest rates, ed.) already offers a buffer for the future.”
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The Federal Debt Agency issued EUR 48.50 billion in debt in 2020 (mainly through linear bonds, or OLOs). Its average term was 13.6 years and the average interest rate was 0.03 percent. “That only costs us about 15 million euros a year,” said Jean Deboutte, director at the agency.
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Finally, it was announced that a new green bond will be issued in 2022.
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