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Belgium is a federal constitutional monarchy. Decision-making powers are divided between the federal government, three language-based communities (Flemish, French and German-speaking) and three regions (Flanders, Brussels Capital and Wallonia). Belgium is a small open and diversified economy. Intra-EU trade is important: it accounts for 65% of Belgium’s exports (mostly Germany, France and the Netherlands) and around 6o% of its imports.

High public debt ratio remains a source of weakness for Belgium’s economy. However, fiscal credibility is sound, and the country has proved in the past its ability to address fiscal imbalances. In the early 1990s, the public debt ratio was as high as 135% but it steadily diminished and fell back to 87% in 2007. Its rise from that date to 2014 is a consequence of the global financial crisis and the European sovereign debt crisis. It has been back on a downtrend since 2015. Regarding fiscal deficit trends, Belgium managed to exit the excessive deficit procedure in 2014. The IMF article IV statement noted that these outcomes have been supported by fiscal and structural reforms undertaken in recent years, including a key pension reform, an overhaul of the corporate income tax regime, and a reduction in labour taxes. The reduction of the public debt burden continues to represent one of the country’s main policy challenges in the medium to long term. Other challenges include the impact of rising private debt burdens, an ageing population, slowing productivity growth and climate change.