LONDON (MNI) – Ratings agency Standard and Poor’s said today
that it could downgrade Belgium’s rating of’AA+/A-1+’ by one notch if
the government fails to form a government which will stabilise the
country’s debt.
S&P said that the downgrade could potentially happen within six
months.
Full Text Below:
Standard and Poor’s said it had affirmed its ‘AA+’ long-term and
‘A-1+’ short-term ratings on Belgium. The ‘AAA’ transfer and
convertibility assessment on Belgium is unchanged.
“We believe that Belgium’s prolonged domestic political uncertainty
poses risks to its government’s credit standing, especially given the
difficult market conditions many eurozone governments are facing,” said
Standard & Poor’s credit analyst Marko Mrsnik. We view Belgium’s
political uncertainty as primarily evidenced by the prolonged delay in
forming a federal government after the June 2010 general election as
well as the prolonged inability to form a key policy consensus across
Belgium’s linguistic divide.
“These key policy areas include, among others, intergovernmental
fiscal arrangements, the status of the Brussels-Halle-Vilvoorde
bilingual voting district, and devolution in social security, health
care, and labor market regulation.
“We believe that this prolonged political uncertainty would have
been more detrimental to the government’s credit standing were it not
for Belgium’s capable and strong institutions–both at the federal and
regional levels. In our view, these positive factors are helping the
government fall below its 2010 general government fiscal deficit target
of 4.8% of GDP.
“Better-than-anticipated economic growth of about 2% this year has
also helped Belgium’s 2010 budget outturn. Exports have fueled this
growth, as external demand from Belgium’s neighbors and chief trading
partners is strengthening, too. Lower-than-budgeted nominal interest
rates have contributed to the 2010 fiscal outturn as well.
“However, we see risks to the government’s 4.1% of GDP fiscal
target for 2011 and to Belgium’s fiscal stance generally.
Notwithstanding an apparent consensus across political parties on the
need for continued fiscal consolidation and government net debt
reduction from the current high level of 94.6% of GDP, we believe
Belgium’s current caretaker government may be ill-equipped to respond to
shocks to public finances.
“In our view, the federal government’s projected 2011 gross
borrowing requirement of around 11% of GDP leaves it exposed to rising
real interest rates. On the other hand, we currently do not expect
further government support for the nation’s banking sector beyond that
already extended after the 2008/2009 global recession.
“We also note that Belgium was in an estimated net external
creditor position of around 51% of current account receipts at Dec. 31,
2009. We could lower the sovereign rating on Belgium one notch if we
conclude that the lack of consensus will result in the government not
being able to stabilize its debt trajectory and to move forward on
reforms designed to improve political cohesion.
“If Belgium fails to form a government soon, a downgrade could
occur, potentially within six months. Should a government be formed but
is, in our opinion, ineffective in its fiscal stance or devolution, we
are likely to consider rating action within two years. On the other
hand, if we believe that the government’s debt trajectory has stabilized
or will improve and if some progress is made on other areas important
for strengthening the social contract, ratings could stabilize at
current levels”.
–London newsroom: 4420 7862 7491; email: wwilkes@marketnews.com
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