Financial rating of the Brussels-Capital Region

Given the challenges facing the Region, Belgium and Europe, a good financial rating of the Region is an undeniable positive factor. This allows the Region to pursue its policy at a competitive financing cost. In this way, it helps to protect the people of Brussels and the government policy aimed at those people of Brussels. However, the extent to which the Region can maintain this rating depends on its ability to provide stable multi-year budget prospects.

Financial ratings reflect the financial health of a state, a company or any entity that relies on the public market for financing. Compare it with the nutriscore. This rating is assigned to food in supermarkets and assesses the nutritional quality of products. This gives consumers a reliable and uniform criterion on which to base their choices.

Similarly, investors can assess the financial quality and health of an entity, such as a regional government, based on a financial rating. After all, these ratings provide a comprehensive picture of an organization's credit story: assessments, risk research and essential insights.

Specialized agencies assign these ratings to whoever issues a bond. Three leading agencies are widely recognized by the financial markets for this: Standard and Poor's Global Ratings, Fitch Ratings and Moody's.

To give (good) ratings, the agencies carry out an in-depth analysis. Although each of these agencies has its own specific expertise, the themes analyzed are broadly the same for authorities such as the Brussels Capital Region:

• the institutional framework
• the general economic situation
• the budget performance
• the financial management in the broadest sense of the word.

Based on their results, the rating agencies assign a rating to the organization or state/region.

It is on the basis of this rating that investors decide whether they can lend money to our Region and at what rate. The ratings vary slightly depending on which agency assigns the rating, but always range from AAA, the highest level, to C, at the bottom of the ladder. Debtors in default receive a D.

The Brussels Capital Region has been subject to a financial rating since 1996. This is revised twice a year. All of the above-mentioned topics are discussed during these semi-annual meetings. The meetings are thoroughly prepared:

• Step 1: explanation. The Minister of Finance and Budget and his cabinet explain the current general strategies and the prospects for the future budget path;
• Step 2: technical and operational analysis. Certain Brussels departments of Taxes (revenue) and Finance and Budget (including Front Office, Middle Office, Budget, etc.) delve deeper into the technical and operational aspects;
• Step 3: financial figures for consolidation. The data is provided by para-regional and community bodies: the rating agencies want to be able to assess the consolidated finances of the Region, even if they fall outside the SEC perimeter. That perimeter refers to the activities, entities and securities subject to the supervision and regulation of the Securities and Exchange Commission. The SEC establishes rules and regulations to ensure the integrity of the securities market and protect investors.

On September 23, 2022, the rating agency Standard and Poor's confirmed the AA rating that the Region has had since March 2021. Thanks to this rating, the Region has historically had financing costs that are quite close to those of the federal state.

The rating assessment consists of two parts, an assessment of the external, institutional framework and a more specific assessment of the entity itself. The scale runs from 1 to 5 per criterion, with 1 being the best and 5 the worst.

For the Brussels-Capital Region, the assessment is as follows:

1. Evaluation of the institutional framework
   • Institutional framework = 2 
2. Criteria related to the evaluation that are specific to the entity. The weight of each criterion is expressed in percentages.
   • Economy (20%) = 2
   • Financial management (20%) = 2
   • Budget results (20%) = 4
   • Liquidity (20%) = 1
   • Debt burden (20%) = 4

Standard and Poor's analyzed the strengths and weaknesses of the Region:

• The strengths: access to liquidity, financial management, the robust economy and the Belgian institutional system.
• The working points: the budgetary performance (the SEC refinancing balance) and the debt volume. 

In October 2022, two new expenditure review projects were launched with technical assistance from the European Commission.

Following the two pilot projects in the field of social housing and mobility, which were completed at the end of 2021, an expenditure review was launched in the autumn of 2022 and completed in the spring of 2023 for the themes of child benefits and economic policy: investments in research & development and innovation.

An independent interdepartmental task force conducts the spending reviews. This consists of BFB, IBSA, the department to which the review relates and the Finance Inspectorate. Experts from SEO Amsterdam Economics, which was hired by the European Commission in the context of the Technical Support Instrument, support the task force.