In a new hit to the euro area's fiscal crisis, Fitch on Monday downgraded the outlook for Belgium's debt rating lower citing the political deadlock as a strong challenge for the nation to return to fiscal health.
Fitch followed Standard & Poor's steps and downgraded the debt rating for Belgium to negative threatening to cut the nations AA+ rating, which is the second highest investment grade, if the political deadlock continued to restrict the plans to adhere to its deficit targets.
The outlook is negative from stable on Belgium by Fitch, following S&P's December warning. Douglas Renwick a director in Fitch's sovereign group said in a statement yesterday the negative outlook reflects Fitch's concerns over the pace of structural reform in the coming years and the ability to accelerate fiscal consolidation without a resolution to the constitutional crisis.
Fear of the political deadlock is the main threat for Belgium, where the country has been run under a caretaker government for more than 11 months. Prime Minister Yves Leterme's caretaker government received parliamentary backing last week for the 2011 budget that intends to cut the deficit to target from last year's 4.1% of the GDP. Belgium is not swelling with deficit as the high debt is the problem, the debt swelled to 96.8% of the GDP at the end of last year rising from 96.2% the previous year which is the third highest in the euro area following Greece and Italy respectively.
The Federal Planning Bureau projected on May 12 that the deficit for 2012 to rise to 4.4% of the GDP and debt to peak at 98.3% of the GDP in 2013, while the European Commission forecasted the deficit to wider to 4.2% of the GDP next year.