Belgium lowers 2011 deficit forecast from 3.6% to 3.3%

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Belgium, confronted with warnings from credit ratings agencies that its debt could be downgraded, lowered its 2011 public deficit forecast on Tuesday from 3.6 percent to 3.3 percent.

"We have the budgetary situation under control," caretaker prime minsiter Yves Leterme told a news conference. "What is clear is that we need to implement structural reforms."

Leterme attributed the 0.3 percentage-point drop, amounting to one billion euros, to an improvement in social security accounts.

The improved forecast came after Belgium plunged deeper into a political crisis last week that has prompted ratings agencies to sound alarm bells.

The largest party in Dutch-speaking Flanders, the separatist N-VA, rejected last week a last-ditch proposal by the French-speaking region's Socialist party leader aimed at forming the basis form a coalition.

Belgium's failure to form a new government more than a year after elections, coupled with a debt load close to 100 percent of national output, has raised concerns that it could be sucked into the debt crisis engulfing the eurozone.

Containing the Greek debt drama was at the centre of two-day talks of European finance ministers in Brussels on Monday and Tuesday, as contagion from hit the borrowing costs of Spain and Italy as well as the Milan stock exchange.

In May, Fitch Ratings cited the political deadlock when it cut its outlook on Belgium from stable to negative.

The agency, however, said the caretaker government's day-to-day fiscal management remained strong despite the impasse, and the public finances have fared better than in other eurozone states.

At the same time, it warned that a high level of public debt, equal to 96.6 percent of gross domestic product last year, "leaves the government with little spare fiscal capacity to deal with future shocks.

Another ratings agency, Standard & Poor's, had already issued a warning in December, lowering its outlook from stable to negative.

© 2011 AFP

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