Understanding Belgium’s public debt in 9 questions

Things to remember:

• Without additional measures, both the Belgian budget deficit and public debt will continue to rise.  
• Rising interest rates are one of the main causes of increasing budgetary pressure.  
• An ageing population and rising healthcare costs are also making the challenge greater.  
• The first objective should be to stabilise public debt. Achieving a rapid reduction is hardly realistic.  
• Timely and gradual intervention is less painful than waiting for the financial markets to force us to take drastic measures.  

Which European rules does Belgium need to comply with? 

According to the European budget rules, the budget deficit cannot exceed 3% of gross domestic product (GDP). In principle, public debt should not amount to more than 60% of GDP.   

Belgium does not currently meet either of these conditions. Consequently, the European Commission requires our country to make a minimum annual structural effort of 0.5% of the GDP to eliminate the deficit.   

Due to higher interest rates and slower economic growth, we are at risk of deviating from that path. According to the Monitoring Committee, in order to stay on track, we need to identify just over 7 billion euros in additional structural measures by 2029. By 2031, this amount will reach around 10 billion euros. 

What will happen if Belgium does not take further action? 

Today, the deficit is just over 5% of GDP. Without further intervention, this could rise to 5.8% in 2029 and 6.2% in 2031. This would mean we would record the worst figures in the entire EU.  

Public debt will also continue to rise. By the end of 2026, the debt-to-GDP ratio would stand at around 108% of GDP. Without adjustments, it could rise to 117% in 2029 and 123% in 2031. The higher the debt, the more we have to borrow and the bigger our interest bill.  

Why is the budget deficit growing? 

On the one hand, since 2013, government revenue has fallen from 52.7% to 49% of GDP, representing a shortfall of 22 billion euros.   

Belgium levies high taxes on earned income. As a result, people are looking for legal ways to pay less income tax, for example by working through a management company. This explains a large part of the decline in revenue.   

In addition, VAT rates for certain sectors and employer’s contributions were reduced in order to promote employment and the competitiveness of companies, which only erodes the tax base even further.   

On the other hand, our spending is increasing.   

To understand this, let’s take a brief look back at history. In the early 1980s, Belgian public finances were also highly vulnerable. At that time, interest rates had risen to between 15 and 16%. A negative snowball effect began to roll (see below) and we had to make severe cuts for years to bring the situation under control. Between the early 1980s and 1990s, primary public expenditure (all expenditure excluding interest expenses) fell from around 51% of GDP to 40%.  

From the 1990s onwards, the situation changed. Interest rates fell sharply, causing annual interest expenditure to fall year on year, from around 11% of GDP to 1.6% in 2022. The government used this unexpected financial leeway to push its primary expenditure back up again. Today, it stands at around 52.2% of GDP.  

In other words, the falling interest expenditure was used to distribute handouts for decades.  Now that interest rates have been rising again since 2020, it is time to tighten the belt once more.   

Why do rising interest rates pose such a significant risk?

The average interest rate on public debt is gradually rising. As old loans mature and need to be refinanced at these higher interest rates, interest costs are slowly increasing.   

Annual interest expenditure could rise from 1.6% of GDP in 2022 to around 3% in 2030. The windfall from lower interest rates over the past decades is reversing completely. So we must not only prevent our other expenditure from rising further, but also find room to pay that higher interest bill.

What is the negative snowball effect? 

To keep the debt-to-GDP ratio – total public debt relative to nominal GDP – under control, the ratio between the average interest rate a country pays on its public debt and the nominal growth of the economy (including price rises) is crucial.  

When interest expenditure on outstanding debt grows faster than the economy, a negative snowball effect can arise. If there is no budgetary balance, public debt will increase rapidly and our country will have to borrow more to refinance its debts.  

Belgium is once again close to that dangerous tipping point that we crossed in the early 1980s.  

What role does an ageing population play?  

In addition to rising interest rates, we are facing higher expenditure due to an ageing population, particularly in terms of pensions and healthcare for the baby boomers, the largest post-war generation.  

Earlier estimates projected a rise in ageing-related costs of around 3.5% of GDP by 2060. Thanks to reforms, that figure is said to have already been brought down to around 1.6%. However, this depends on the planned measures being fully implemented. These include changes to the pension system, keeping people in work for longer and getting more people into work. But the biggest challenge will be getting healthcare spending under control.   

Could a higher employment rate help?  

A higher employment rate is part of the solution. This leads to security expenditure falling and contributions rising. Belgium has an employment rate of around 76% for 25-64-year-olds. In some European countries, it is around 84%. Our government is aiming for 80% by the end of its term of office. That’s too optimistic, but it’s better to be a little too ambitious than not ambitious enough.  

Can the financial markets force Belgium to take action?  

A government can borrow money as long as investors are willing to buy its bonds. When they start to have doubts about fiscal policy, they may demand a higher interest rate.  

That happened in the UK in 2022, when the then Prime Minister Liz Truss announced 50 billion pounds in tax cuts. The financial markets quickly lost confidence and, in barely six working days, pushed the UK’s ten-year bond yield from 3.2% to 4.4%. Prime Minister Truss stepped down and the announced measures were scrapped. This shows just how quickly the bond market can force a government to adjust its policy. 

Is Belgium already under pressure?

Belgium is still able to repay its debts without any problems today. But when other countries pursue more credible fiscal policies, their government bonds become more attractive than Belgium’s.  

Our creditworthiness has already been downgraded by the three main credit rating agencies for 2025 and 2026. We must therefore convince these rating agencies and the financial markets that we are taking our budgetary problems seriously.  

The first objective is to halt the rise in the budget deficit and stabilise public debt at around its current level. A sharp drop in public debt is not realistic. After all, in addition to an ageing population, we are also facing higher expenditure on areas such as defence and the climate transition.

Conclusion 

In the 1980s, the negative snowball effect led to some fifteen years of severe austerity measures. At that time, we saw index jumps, a comprehensive savings scheme and higher crisis taxes. If we do not reform of our own accord now, there is a risk that later, under pressure from the financial markets – read: with a knife to our throats – we will have to take much harsher measures.  

Ultimately, we must live within our means. We can no longer spend more than we take in indefinitely. This does not mean that we have to abolish all benefits or public spending, but it does mean that we have to better align them with our income.  

The longer we wait to do this, the more difficult and painful the adjustment will be.