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Reformed character

In terms of geographical size and population, Belgium is one of the Euro-zones’s smaller member states, However back in the early 1990s Belgium was in the ignominious position of having one of Europe’s largest debt burdens. The financial figures at that time were especially grim: Belgian national debt as a percentage of GDP 137% in 1993; a budget deficit of 7.1% GDP in 1992, and a very high share of short-term debt.
That this nadir in finances was happening when countries were signing up to the Maastricht, and its rules on budgetary discipline, was a significant defining time for Belgium. “Belgium wanted to be part of the new Europe and to be in that first tier of members, but was in poor financial health at this time,” comments Jean Luc Steylaers, deputy director of the Belgian Debt Agency (BDA).
“And so we had to make a choice. We are a small country and under no illusions that the union would and could easily continue without our participation. It was up to us to change our ways and make ourselves financially fit enough to join.” Although not fulfilling the Maastricht criteria at the time, Belgium was allowed in as one of the founding members of the EU, on condition that it made substantial progress in sorting out its debt.
“We have taken our medicine and our financial health has improved greatly,” states Steylaers adding that in his opinion, the ideas and practises of sound public financial management are now absolutely ingrained in Belgian politics and its people. The debt to GDP ratio is declining and sank firmly under the 100% level during 2003. The BDA forecasts that this debt ratio is on track to decline to the EU average within the next four years.
As well as reining in public finances the Belgians have ‘tidied’ their bond market too. Debt buy-back programmes have significantly trimmed the number of bonds in issue. Another stated policy of the debt management strategy has been to reduce foreign currency debt. In 1995 the share of non-domestic currencies in total central government debt exceeded 25% in Belgium, while today that figure is around 2%.
One of the legacies of those debt ridden days is that Belgium’s share of Europe’s government bonds at 6%, which makes it the fifth largest bond market in the EU, is considerably higher than its 3% share of GDP would suggest. Looking on the bright side, this might be one of the contributors to the very good liquidity within the Belgian bond market. And there is a much wider, and possibly healthier, geographical spread of debt ownership. In 1998, less than 20% of Belgian OLOs were held by non-Belgian entities; today just over 52% of OLO’s are held by non-domestics.
Steylaers jokes that they have been so successful in streamlining and opening up the Belgian government bond market, he and his colleagues are quite happy to be called predictable. “That the supply pipeline is pre-announced every year (around €22bn to €25bn every year since 2001), that investors know which bonds are to be issued or tapped makes our market appealing for investors. We do not want ‘surprises’ any more than they do!

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