According to the European Commission debt sustainability analysis (DSA), the medium- and long-term risks to Belgian public finances are high. The general government debt-to-GDP ratio (108 % in 2021) is above that of other euro area countries and, most importantly from a sustainability perspective, it is expected to rise further in the medium term. The DSA concluded that substantial structural consolidation efforts will be needed to stabilise Belgian public debt and address pressures stemming from population ageing.

Having regard to the overall high level of sustainability risks to which Belgian public debt is exposed, this article takes a closer look at public finances at various levels of government. More precisely, we analyse debt sustainability risks for the federal government (including social security), the Flemish Community, the French Community, the Walloon Region and the Brussels-Capital Region (consolidated with the Common Community Commission).

The pandemic and the exceptional intervention by the government to deal with its consequences caused a historic increase in debt ratios and budget deficits at both federal and regional levels. Although economic activity had returned to pre-pandemic levels by the end of 2021, all parts of government continued to run deficits well above 2019 levels. Temporary assistance to cope with the energy crisis and - in Wallonia - flooding have caused a further increase in public debt. What is most concerning, however, is that even after the lifting of these temporary measures, a structural deficit is still expected in the coming years assuming unchanged policy, with an ensuing structural upward trend in the debt dynamics. Moreover, the rise in government bond yields since the beginning of the year is putting additional pressure on public finances.

Although the lion's share of public debt is still at the federal level, the rising debt ratios at regional level are also worrisome. Indeed, an important factor in maintaining the sustainability of public debt is revenue autonomy. In this regard, the federal government has far more levers at its disposal than the regions and especially the communities, which have no taxation powers.

This article addresses several questions regarding the sustainability of finances of the government subsectors. What are the main characteristics of public finances in the selected subsectors of government? How is the budget balance expected to develop in the government entities concerned? How sustainable are public finances of the various entities based on a regional debt sustainability analysis covering medium-, short- and long-term risks? To what extent will debt levels and dynamics be impacted by negative growth shocks, rising interest rates and higher public investment? What fiscal efforts will be required at each level of government to bring Belgium’s debt ratio down to 100 % of GDP over the next 20 years?