OECD says Belgium's fiscal fix is too small and too late

The gap the OECD wants closed

The OECD's latest assessment, published Tuesday, says Belgium needs to do more, and sooner, to steady its debt path. Even if the current coalition holds together and delivers a €10 billion deficit reduction by 2029, the group says that will not be enough to stop debt from climbing.

Its guidance is blunt. The OECD says efforts "should be front-loaded and go beyond government plans," warning that "Despite existing consolidation plans, high public debt and a high deficit are projected to continue rising, highlighting the urgent need to strengthen fiscal sustainability." It judges the planned savings of 1.5% of GDP by 2029 as insufficient, and argues Belgium must add measures worth 3.5% of GDP by 2035 to keep debt around 110% of output.

Politics complicate the math

Budget tensions could topple the government. On Monday, Prime Minister Bart De Wever submitted his resignation to the king, who has put off a decision while he confers with coalition party leaders. King Philippe plans to see De Wever again on Friday, and, according to someone familiar with his plans, the prime minister has suspended formal budget talks while the palace consultations take place.

The five-party coalition has blown past multiple budget deadlines. One bloc resists raising more tax revenue, another opposes cuts to social programs. Deputy prime ministers remained entrenched as De Wever met with the king. Budget Minister Vincent Van Peteghem of the center-right CD&V urged partners to abandon "extremist positions" in an interview on VRT radio.

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Deficits, ratings and a pricier risk spread

Belgium is on track to post the euro area's biggest deficit next year at 5.2%, with a slight easing to 5.1% in 2027 based on a preliminary update of the OECD's projections. Credit risk has been marked down twice this year after two downgrades last year. A Bloomberg chart header notes the Belgian risk premium has widened, referencing the Belgian German 10-year yield spread.

The OECD also flags structural pressures. It says "Rising interest costs and growing spending pressures from ageing, defense and the climate transition further weigh on fiscal sustainability."

What the OECD wants changed and why markets care

Given Belgium's already high tax take, the OECD prioritizes spending restraint. It also backs shifting the burden off labor and cleaning up the code by curbing exemptions to widen the tax base. On competitiveness, it points to industry headwinds, including a call for a more adaptable wage setting system and the drag from elevated energy costs.

The bottom line: if politics delay action, deficits stay larger for longer, which can keep debt near the spotlight and the risk premium elevated. That matters for your portfolio if Belgian spreads and broader euro credit pricing feed through to funding costs and equity risk appetite.

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