Belgium financial sector highly exposed to mortgages: IMF

While the pandemic has had major social and economic impacts in Belgium, these have been mitigated by a strong, sustained public health and economic policy response.

With the authorities' impressive vaccination campaign continuing and containment measures easing, consumer and business confidence are recovering and have reached historic highs, although uncertainty and risks remain.

The authorities appropriately prioritized containing the pandemic and supporting the economy and households, extending broad support measures to 2021. These are rightly expected to be phased out from October, with targeted support continuing.

Policies should increasingly focus on addressing long-standing fiscal and structural challenges, many aggravated by the pandemic. The government's adjustment plan is rightly linked to the recovery, but should be strengthened to durably rebuild fiscal buffers, centered on expenditure-led, mediumterm consolidation.

This would help guard against future pressures (aging population, rising interest rates) and new shocks. Tax reforms, including actions against tax/social security fraud, should simplify the tax system, strengthen compliance, ease the burden on labor income, improve labormarket incentives, promote fairness, and help achieve climate goals. Labor and social-benefit policies should shift from preserving jobs to facilitating reallocation/participation, including to meet the authorities' ambitious employment targets.

These efforts should be complemented by enhanced debt restructuring/insolvency frameworks, reducedregulatory barriers to entry and competition, and actions to promote business dynamism. Plans to fight poverty and reform pensions now under preparation appear to rely heavily on increased labor participation; attention will also be needed to ensuring fiscal sustainability. Financial sector risks, while manageable, should be closely monitored.

The Next Generation EU / Recovery and Resilience Program (NGEU/RRP) should boost reforms and the green-digital transformation.

The Belgian economy was strongly affected by COVID-19 in 2020, contracting by 6.3 percent, in line with the EU average. Contactintensive activities were particularly affected. Increasingly-targeted restrictions and adaptation by households and firms eased impacts over time.

The authorities' timely and strong response also helped mitigate impacts, preventing a spike of job losses and bankruptcies. The financial sector has weathered the crisis well so far, benefitting from monetary easing, public support to borrowers, and regulatory and supervisory actions.

The external current account moved to a small deficit in 2020, despite sustained pharmaceutical exports, lower energy prices, and lower travel/transport service imports. The authorities' impressive vaccination campaign has facilitated reopening, confidence has rebounded sharply, and growth forecasts are being revised upwards.

Growth should reach 5 percent and 3½ percent in 2021 and 2022, led by private consumption and investment and an improving global environment. Investment and reforms under the NGEU/RRP should support growth. Uncertainty remains, however, still dominated by COVID dynamics, especially new strains; near-term risks are balanced. Upside risks include stronger recovery

with vaccination and reopening, although this could exacerbate supply bottlenecks and price hikes. Scarring effects are diminishing, although rising unemployment and bankruptcies remain a possibility, especially for hard-hit sectors, after public support is phased out. Weaker global recovery, tighter financing conditions aggravated by higher debt levels, or geopolitical strains could affect the outlook.

While there has been renewed policy momentum at the federal level since the new government took office, delays or difficulties in reaching consensus may slow or affect reforms and adjustment going forward. Maintaining adequate fiscal support, while preparing adjustment plans Fiscal support should be maintained while the health crisis continues and until the recovery firms.

MANILA Protesters march during a rally outside the Malacanang palace in Manila, Philippines. The group has called for justice and accountability for the thousands who have died due to the government's anti-drug crackdown under the administration of Philippine President Rodrigo Duterte. -AP