The Belgian State has already issued more than three-quarters of the record amount of debt that it originally intended to take on this year, as soaring interest rates and a general European economic downturn make the country's borrowing practices appear increasingly unsustainable.
Belgium has now issued €33.8 billion in Linear Ordinary Bonds (OLOs) in 2023 against a record annual planned borrowing of €45 billion, L'Echo reports.
Belgium's rapid debt accumulation also comes at a time when servicing its borrowing is becoming increasingly expensive. On Monday, Belgium auctioned €1.3 billion in ten-year OLOs at an average interest rate of 3.024%. Last year, the same bonds' yield averaged 1.854%; at the end of 2021, they averaged just 0.2%.
Similarly, the yield on thirty-year OLOs, of which €953 million was issued by the Belgian State on Monday, increased to 3.429% compared to 2.532% this time last year.
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In total, the Belgian taxpayer will have to pay €2.7 billion in interest on the €3.2 billion worth of OLOs auctioned on Monday. This is €800 million more than taxpayers would have been expected to pay this time last year. In 2022, steep increases in bond yields are estimated to have cost the Belgian taxpayer a total of €10 billion.
Soaring borrowing costs further exacerbate Belgium's perilous fiscal predicament, with the country's debt-to-GDP ratio and budget deficit already amongst the highest in the EU. Indeed, over the past year both the EU and the IMF have openly criticised the country's high level of public spending.
Worse to come?
It is highly likely that Belgium will find servicing its debt increasingly difficult in the foreseeable future, as the European Central Bank (ECB) is expected to hike interest rates once again at its next meeting on Thursday.
The ECB has already increased interest rates eight times over the past year in its efforts to curb Europe's soaring inflation rate, which is driven in large part by historically high food prices.
At its last meeting in June, the ECB raised interest rates by 25 basis points (0.25 percentage points), bringing its benchmark deposit facility rate to 3.5% – its highest level in 22 years. At a press conference announcing the rate increase, ECB President Christine Lagarde stated that it is "very likely" that the ECB will hike rates again at its forthcoming July meeting.
Reuters also recently quoted an official ECB account of its Governing Council's June meeting, which noted that the Bank "could consider increasing interest rates beyond July, if necessary."
