Brussels credit rating downgraded, partly due to lack of government

American credit ratings agency Standard and Poor’s (S&P) has downgraded the rating for the Brussels region from A+ to A with a negative outlook.

The rating downgrade was expected, Bruzz reports, as the rating was already downgraded from AA- to A+ (on a scale ranging from AAA to D) last March.

At the time, the Brussels government promised to keep the debt ratio below 210% and to follow a budgetary path to eliminate the structural deficit of €1.5 billion in the long term.

However, because there is still no government, no work has been done on restructuring.

S&P still considers the Brussels region to be “investment grade”. An A rating indicates “a strong capacity to meet its financial obligations”, but the new rating also means that S&P considers Brussels to be somewhat vulnerable to economic changes.

According to the rating agency, “the budget deficit and debt ratio are higher than expected” and it fears the deficit will not be eliminated by 2027, and that this will cause debt to increase further.

S&P also said that “political fragmentation contributes to uncertainty about the region's ability to tackle budget deficits”.

The rating downgrade will have an impact on Brussels' ability to borrow money for public infrastructure projects, as banks and investors may demand higher interest rates.

In the coming days, the Brussels Debt Agency will analyse the situation further.

“A credible future perspective can only be offered by a fully-fledged new government with a reformed budget and a credible path to balance,” said budget minister Sven Gatz (Open VLD) in an initial reaction.

“Given that the outlook is negative, the need for a new government team is all the more urgent.”

According to Gatz, the downgrade cannot be attributed solely to the caretaker government.

“The almost unanimous vote by the Brussels parliament in December 2024 to increase funding for the Renolution renovation grants as an additional expenditure is considered to be the wrong signal,” Gatz said.

“As a result, the credit downgrade has become a collective responsibility of both the government and parliament.

"Although S&P still assesses the liquidity and economic situation of the Brussels region as positive, concerns about financial stability are considerable. Brussels will find it more difficult to find financial partners on the credit market and will have to pay higher interest rates.”

In the short term, Gatz said, the consequences will remain limited because a significant volume of long-term financing (€1.4 billion) has already been secured at a fixed interest rate since the beginning of January.

But according to experts, S&P’s rating downgrade is an important signal.

“Brussels has one more chance to get its house in order, otherwise a Greek scenario looms,” warned VUB professor of public finance Herman Matthijs.

“This is very important. International financial markets look at these ratings and usually follow them. With a lower rating, lenders will demand higher interest rates, which will cause Brussels' debt to rise even faster.”

Matthijs said that Brussels will soon have to borrow heavily because the region is using a lot of short-term loans whose interest burden is growing.

He said the negative outlook added to the rating by the rating agency is particularly worrying, noting that while Belgium’s federal government also received a lower rating from a different agency, it was accompanied by a positive outlook.

“The only hope for Brussels is that S&P's rating is still in the A group, but it is the lowest rung in that group,” said Matthijs.

“If the rating is downgraded again, Brussels will end up in the B group. This is a clear message from S&P: Brussels has one more chance from the credit rating agency to get its house in order. There will have to be thorough restructuring on the expenditure side.”

Dozens of different Brussels neighbourhood and community associations expressed serious concerns about basic safety in the Brussels region in an open letter reacting to the credit rating downgrade.

The neighbourhood associations are calling for investment in the social sector, fearing regional politicians will respond with "easy solutions" such as new taxes and cuts to services.

“As usual, the first victims of the cuts will be the cultural and social sectors,” said Eric Vandezande, chairman of the citizens’ collective of the 40 committees.

The committees said that they had pressing concerns regarding drug violence, homelessness and crumbling public infrastructure. The region is also struggling with a housing crisis, unemployment and a budget deficit that, if policy remains unchanged, threatens to rise to €1.59 billion by the end of 2025.

The neighbourhood committees are calling on the federal government to take action by not only focusing on policing and justice, but also by paying attention to the "disproportionate burden" that Brussels currently bears in terms of asylum and migration – "a direct result of the failed federal asylum and migration policy".

“It’s time to admit that the security problems of our major cities are intertwined,” said Vandezande.

“A coherent, federal approach is therefore needed to provide an effective response to these metropolitan problems. This is a shared Belgian responsibility. Local stopgap measures are no longer enough.”