Bloomberg News

Fitch Affirms Belgium’s Rating Pending Government Agreement

October 20, 2011

(Updates with comments from Fitch in second paragraph.)

Oct. 20 (Bloomberg) -- Belgium had its AA+ credit rating affirmed by Fitch Ratings, which maintained a negative outlook pending a government agreement as an escalating sovereign debt crisis could inflate the cost of rescuing Dexia SA.

“A more aggressive debt-reduction program will be needed, despite the weaker near-term economic outlook” for Belgium to maintain the second-highest rating, London-based Fitch Ratings said in the statement. The country’s track record of debt reduction “gives some confidence that necessary fiscal reforms and adjustment will be forthcoming.”

While the nationalization of Dexia’s local banking unit for 4 billion euros ($5.5 billion) inflated Belgium’s debt load to an estimated 98 percent of gross domestic product, the rating company said the likelihood the country will face additional costs after providing as much as 54.5 billion euros of funding guarantees to Dexia is “low,” barring an escalation of Europe’s sovereign debt crisis.

Fitch plans to review Belgium’s rating again after the completion of coalition talks, which it expects in coming weeks after an eight-party agreement about institutional aspects such as the distribution of tax revenue, regional fiscal autonomy and a split of a disputed voting district encompassing the bilingual capital paved the way for the formation of a government.

The yield on Belgium’s 10-year bonds dropped 4 basis points to 4.41 percent today after surging 82 basis points in the previous 12 days. The premium, or extra yield, investors demand to hold those bonds rather than German government securities of similar maturity widened 2 basis points to 241 basis points.

Under Review

Belgian government bonds have lost 4.3 percent this quarter, the third-worst performance among 26 markets tracked by indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Investors sold the notes on concern the rescue of Dexia may lead to a cut in Belgium’s credit score. Moody’s Investors Service put the rating under review for a possible downgrade on Oct. 7.

Belgium’s “advanced” economy, with high income per capita, high domestic savings and low private-sector debt, as well as its current account surplus support the AA+ rating and put the country in the euro region’s core, Fitch said in today’s statement.

--Editors: Peter Chapman

To contact the reporter on this story: John Martens in Brussels at

To contact the editor responsible for this story: Angela Cullen at

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