Once again, the National Bank of Belgium has expressed concern about the state of Belgium's public finances. Although France, Italy, Japan and the US have far higher debt ratios than Belgium, the National Bank warns that Belgium's debt position is as fragile as theirs.
Belgium’s public debt currently stands at around 104% of GDP. This compares with 113% % in France, 135% in Italy, 122% the United States and a huge 236% in Japan. The National Bank warns however that focusing solely on headline figures can obscure deeper structural weaknesses. It argues that debt sustainability depends not only on the current level of debt, but also on future borrowing needs, fiscal trends and general economic dynamics.
In Belgium's case, short-term risks remain limited. However, the National Bank of Belgium has one major concern: the government's gross financing requirement. This amounts to around 20% of GDP each year. On the hand Belgium’s positive net foreign investment position offers some resilience, as domestic savings could help to absorb any funding shocks. Belgian savers demonstrated this resilience in 2011, when they purchased bonds after foreign investors pulled back from Belgian debt.
Worrying public debt
Looking further ahead, the National Bank describes the projected increase in Belgium’s public debt as “worrying”. It cites persistent budget deficits, mounting interest costs, and expenditure related to an ageing population.
The National Bank concludes that while our economy is not facing an immediate crisis, a sudden shift in market sentiment could quickly turn liquidity pressures into solvency risks. This would turn today's slow-burning debt dynamics into tomorrow's financial emergency.