Standard & Poor’s downgraded Belgium’s long-term sovereign credit rating Friday, citing the country’s high debt and deficit and its inability to implement spending cuts following 18 months without a formal government.
Belgium, which for the year since a general election on 13 June 2010, has had no official government, has struggled to implement spending cuts after S&P said the caretaker government of Yves Leterme lacked a mandate to deal with the crisis.
“We think the Belgian government’s capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private-sector deleveraging both in Belgium and among many of Belgium’s key trading partners……The ability of authorities to respond to potential economic pressures from inside and outside of Belgium… in our opinion is constrained by the repeated failure of attempts to form a new government,” S&P said in a statement.
S&P also cited the sale of Dexia SA’s Belgian bank unit and French municipal-lending division to state-owned companies as offsetting economic growth.
Ratings agencies have long warned Belgium that its protracted political uncertainty could negatively affect the credit score of a country whose current gross debt-to-gross domestic product ratio sits at nearly 97%. The G8 average is 80%.
Citing solvency concerns and broader market pressures — Belgium’s yields on long-term bonds are closing in on 6% (10-yr yield was at 5.92% in Friday afternoon trading) — S&P’s cut Belgium’s credit rating by one notch to AA. S&P also changed its outlook on the country to negative.
Belgium was the third Eurozone country to be hit with a downgrade in the past 48 hours, following Portugal and Hungary.