Following the downgrading of Belgium's credit rating, US rating agency Moody’s has now also downgraded the ratings of Flanders, the Walloon Region and the Belgium’s Francophone Community. For all three entities, these are the first downgrades by Moody’s since December 2021. The outlook has been revised from negative to stable.
The US rating agency Moody’s downgraded Belgium’s credit rating last Friday. Moody’s fears that Belgium's federal government’s planned measures will not be sufficient to bring the national debt under control. The downgrade could mean that the government will have to borrow at higher interest rates to service its debt.
For Flanders, the rating – just like that for Belgium last Friday – has been downgraded by one notch from Aa3 to A1.
The credit rating for the Francophone Community has been downgraded by one notch to A3, two notches below that of Flanders. The credit risk remains low, although the region is languishing at the bottom of the pack.
The Walloon Region drops another notch to Baa1. This means that Moody’s sees a “moderate credit risk” and that bonds “may possess speculative characteristics”.
Three mutually reinforcing developments
Moody’s cites “three mutually reinforcing developments” as the reason for downgrading the ratings of the three regions.
Firstly, there is the downgrade of Belgium’s credit rating, whilst the regions are “institutionally, operationally and financially” closely linked to the federal level and their share of Belgium’s total debt has increased.
Secondly, the rating agency points to the “deteriorating financial positions” of the regions and communities, due to “successive shocks, automatic wage indexation and significant capital programmes”. Moody’s observes how “spending pressures and rising interest costs” are “reducing fiscal flexibility”, making the regions more vulnerable to economic setbacks.
Finally, Moody’s also highlights the “weak fiscal coordination” between the various levels of government in Belgium. This undermines confidence that they can, if necessary, consolidate the budget “in a timely and consistent manner”.