Reuters logo
8 months ago
Fitch Downgrades Belgium to 'AA-'; Outlook Stable
December 23, 2016 / 9:07 PM / 8 months ago

Fitch Downgrades Belgium to 'AA-'; Outlook Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Belgium - Rating Action Report here LONDON, December 23 (Fitch) Fitch Ratings has downgraded Belgium's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'AA-' from 'AA', with Stable Outlooks. The issue ratings on Belgium's senior unsecured foreign and local currency bonds have also been downgraded to 'AA-' from 'AA', and the issue rating on the short term debt has been affirmed at 'F1+'. The Country Ceiling has been affirmed at 'AAA' and the Short-Term Foreign and Local Currency IDRs at 'F1+'. KEY RATING DRIVERS The downgrade of Belgium's Long-Term IDRs reflects the following key rating drivers and their relative weights: HIGH Belgium's gross general government debt/GDP, forecast to be 107% of GDP in 2016, is the highest among 'AA' category sovereigns. The government's fiscal deficit targets have faced successive upward revisions since October 2014 when the new government decided to soften near-term fiscal consolidation while it pursued structural reforms aimed at stimulating economic growth. This persistent fiscal slippage moves back the first year with substantial debt reduction to 2019, two years later than previously projected by Fitch in November 2014, when the agency placed Belgium's rating on Negative Outlook. Fitch has revised up its general government budget deficit forecast for 2016 to 3.0% of GDP, from 2.7% in its last review, and from 2.2% during its November 2014 review. The higher deficit, which represents a rise from the 2015 outturn of 2.5% of GDP, partly reflects a fall in fiscal revenues resulting from a tax reform reducing the burden of labour income taxes and social contributions on businesses and households. The 2016 fiscal deficit was further raised by 0.2% of GDP by extraordinary spending on refugees and on extra security measures following the recent terrorist attacks in France and Belgium. Repeated slippage against government targets is negatively affecting fiscal policy credibility, and reduces confidence in the ability to meet future fiscal targets. Fitch has also raised the 2017 deficit forecast to 2.2% of GDP, from 1.8% in the last review, and 1.3% in November 2014. This partly reflects lower projected returns in a number of revenue measures relative to the government's forecast. Beyond 2017, Fitch believes that the decentralised nature of the Belgian political system increases the challenge of achieving the consolidation targets for governments below the federal level, while differences between the parties in the coalition government going into the 2018 local election and 2019 federal election further raise risks around the ability to achieve fiscal targets. Belgium's 'AA-' IDRs also reflect the following key rating drivers: Belgium's ratings balance the government's high public debt burden and fiscal slippage in recent years against the economy's substantial net external creditor position, strong governance indicators, high income per capita and record of macroeconomic stability. The economy has a strong net external creditor position, forecast to be 50% of GDP in 2016, attributable to the high net financial wealth of Belgian households invested abroad. Belgium's current account has improved to a surplus of 0.4% of GDP in 2016, due to the fall in the price of oil imports and better export performance in recent years. The government has been implementing structural reforms targeted at improving Belgium's cost competitiveness. Most importantly, it has reduced employers' social security contributions and has frozen the automatic wage indexation mechanism in 2014-15. The measures are estimated to have reduced wage costs by 2-3% in 2016, partially reversing the erosion of Belgium's cost competitiveness relative to its immediate neighbours. The government also passed pension reforms at end-2015 to tighten age and career requirements for pensions, removing incentives for early retirement and reducing public pension payouts, halving the fiscal costs of ageing to 2.1% of GDP by 2060. These measures are expected to boost potential growth for the economy. Fitch forecasts real GDP growth to have slowed to 1.2% in 2016 (2015: 1.5%), due to the adverse impact of the 2015-16 terror attacks in France and Belgium on tourist numbers and retail activity in Belgium. Fitch forecasts real growth to improve slightly to 1.3% in 2017 and 1.5% in 2018, driven by private consumption and private investments, which are supported by accommodative monetary policy and the government's structural reforms which have boosted growth in employment (1.2%yoy in 3Q16) and disposable incomes, while reducing the unemployment rate (7.9% in October 2016). Upside risks to growth include the impact of faster labour market improvements on domestic demand, while uncertainties surrounding the Brexit process, political risks in upcoming eurozone elections and the impact of the Italian banking crisis weigh on the downside. Inflation rose to 1.7% yoy in November 2016 from an annual average of 0.6% in 2015, due to the government's measures to raise VAT on electricity, excise duties and administered prices, and also due to higher services inflation in the economy. Higher inflation relative to the eurozone (0.6% yoy in November 2016) and the reactivation of the automatic wage indexation mechanism in April 2016 threatens to partially erode some of the competitiveness gains of recent years. However, pending legislation seeks to reform the wage negotiation system to maintain Belgian wage growth in line with its neighbours. Sovereign refinancing risk is low, due to a long average debt maturity of 8.7 years, and a low average weighted bond yield of 2.6%. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Belgium a score equivalent to a rating of 'AA-' on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows: - Public finances: -1 notch, to reflect high gross general government debt/GDP and sizeable contingent liabilities in the form of government guarantees on Dexia's debt. The SRM is estimated on the basis of a linear approach to debt/GDP and does not capture the higher risk at high levels of debt/GDP. - External finances: +1 notch, to reflect Belgium's large net external creditor position relative to the 'AA' rating category, which is not captured by the SRM. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Outlook is Stable, which means Fitch does not expect developments with a high likelihood of leading to a rating change. However, the main factors that could lead to a positive rating action, individually or collectively, are: - A track record of government budget deficit reductions placing public debt/GDP on a sustained downward trajectory. - Strengthening growth prospects and competitiveness. Future developments that could individually or collectively, result in a negative rating action include: - Growing fiscal deficits, resulting in public debt/GDP rising. - Worsening of Belgium's medium-term growth prospects, e.g. due to a worsening in competitiveness. KEY ASSUMPTIONS In its debt sensitivity analysis, Fitch assumes a primary surplus averaging 0.6% of GDP over the next 10 years, trend real GDP growth averaging 1.3%, an average effective interest rate of 2.3% and GDP deflator of 1.9%. Based on these assumptions, the debt/GDP ratio would be stable at 107% in 2016-2018 before falling slightly to 106.1% in 2019 and 98% by 2025. Fitch expects the global economy to perform in line with assumptions set in its Global Economic Outlook (November 2016), and in particular eurozone GDP growth of 1.6% for 2016, and 1.4% for 2017 and 2018. Contact: Primary Analyst Eugene Chiam Associate Director +44 20 35301512 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Maria Malas-Mroueh Director +44 20 3530 1081 Committee Chairperson Jan Friederich Senior Director +852 2263 9910 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017088 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below