Financial Crime World

Belgium Risk Assessment: A Fragile Economic Climate Amidst Uncertainty

Introduction

A country risk rating of A3 from Coface highlights Belgium’s generally good but volatile political and economic environment, which can affect corporate payment behavior. Despite a secure business climate, occasional difficulties may arise for companies, with an acceptable default probability on average.

Business Environment

Belgium boasts an excellent business environment, earning a business climate rating of A1. The country’s favorable climate allows intercompany transactions to run smoothly in environments rated A1.

  • Corporate financial information is reliable
  • Debt collection is efficient
  • Institutional quality is high

Strengths and Weaknesses

Strengths:

  • Optimal location between the UK, Germany, and France
  • Hosting European institutions, international organizations, and global groups
  • Well-trained workforce, thanks to vocational education and multilingualism
  • Attractive business climate

Weaknesses:

  • Political tensions between Flanders and Wallonia
  • Complex institutional structure
  • High dependence on Western Europe
  • Saturated transport infrastructure

Belgium’s economy is expected to continue recovering in 2022 but at a slower pace. The ongoing pandemic and war in Ukraine will weigh on growth prospects, with inflation rates reaching their highest level in almost 40 years.

  • Public spending will peak in 2022, driven by European funds
  • A slight improvement in public finances is anticipated, mainly due to increased tax revenues
  • Gross public debt remains high, and the government may pursue further expansionary measures

Current Account

The current account should switch to a small surplus in 2022, despite the energy bill weighing on trade surpluses. External debt is substantial but lower than total assets held abroad, resulting in a net external excess of about 48% of GDP.

Vulnerable Coalition Government

Belgium’s Vivaldi coalition government, formed in March 2020, faces ongoing challenges. Despite some important agreements, the disparate nature of the coalition makes it vulnerable to political instability and extremist parties gaining power.

  • The opposition includes parties that performed well in the 2019 elections, adding to the uncertainty

Conclusion

Overall, Belgium’s risk assessment highlights a complex economic climate with both strengths and weaknesses. As the country navigates ongoing challenges, businesses and investors must remain cautious of potential disruptions and uncertainties.