Rising borrowing costs have brought forward the risk of an interest-driven debt “snowball” in Belgium to 2029, rather than 2031, according to a warning delivered to senior federal ministers on Wednesday evening.
Pierre Wunsch, governor of Belgium's National Bank, and Jean Deboutte, director of the Belgian Debt Agency, delivered the news last night to a restricted Federal ministerial committee made up of the Prime Minister and Vice-Prime Ministers from each party in the Federal coalition.
According to reporting in De Tijd, the Bank and Debt Agency expects the amount Belgium will be spending on interest repayments to rise to €20.4 billion by 2029, up from a previous estimate of €18.6 billion in June.
The difference, driven by higher interest rates, is an upward revision of €1.8 billion to the forecast in just a few months, raising the risk of a sooner-than-expected debt snowball in which the government must borrow additional funds simply to cover interest payments.
Since June, long-term interest rates for government debt have risen by 1 percentage point and short-term debt by 0.3 percentage points, increasing Belgium's borrowing costs as it rolls over its loans.
Interest rates have been climbing as financial markets anticipate central banks will raise rates to control inflation driven by energy costs linked to the war in Iran.
Governments are also competing in the debt market with US tech firms borrowing large sums for new capital investment in AI, such as data centres.
Federal Deficit Negotiations
The Federal government are locked in negotiations on how to reduce Belgium's budget deficit and, with it, future borrowing requirements to prevent a debt snowball.
Political parties are seeking to close a €10 billion gap, meeting for nine hours on Sunday to find ways to raise revenue or cut spending.
Key disagreements centre on healthcare cuts and raising the VAT rate. No deal was reached, putting pressure on Prime Minister Bart De Wever (N-VA), who has to present a revised budget to Parliament by 13 October, ahead of submission to the European Commission by 15 October.
Belgium's deficit last year was 5.2% of GDP, the highest in the eurozone, with debt forecast to rise to over 110% of GDP this year.
As a result, Belgium remains subject to the eurozone's Excessive Deficit Procedure, which it entered in 2024. Under this procedure, Belgium is expected to end its excessive deficit by 2029 bringing it to below 3% of GDP.
Across the eurozone, only France (116%), Italy (137%) and Greece (146%) have higher debt levels than Belgium.
Last month, Federal Budget Minister Vincent Van Peteghem (CD&V) warned that the expected benefits from austerity measures were already billions adrift of reality.
