Fitch Ratings Downgrades Flemish Community's IDRs to 'AA-'

Strategic Insights -

The Flemish Community, a federated entity of the Belgian state, has seen its Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) downgraded by Fitch Ratings to 'AA-' from 'AA' due to the recent downgrade of the Belgian sovereign. The Outlooks are Stable. This move follows the downgrade of the Belgian sovereign to 'A+' from 'AA-' on June 13, 2025. The downgrade signifies a heightened risk for the Flemish Community's creditworthiness, as it becomes increasingly tied to the economic fortunes of the Belgian state.

Key Takeaways:

  • The downgrade of the Flemish Community's IDRs to 'AA-' from 'AA' by Fitch Ratings reflects the increased risk associated with the entity's creditworthiness due to the recent downgrade of the Belgian sovereign.
  • The entity's Standalone Credit Profile (SCP) remains at 'aa', two notches above the rating of Belgium, indicating a strong credit profile despite the downgrade.
  • Fitch believes that in some scenarios, the Flemish Community would have the ability to continue servicing its debt despite a default of the sovereign, which is reflected in the one-notch rating difference with the sovereign.
  • However, Fitch also believes that a sharp deterioration in sovereign finances would likely affect the Flemish Community, and that a default of the sovereign would have a significant effect on the entity's cost of borrowing.
  • The Flemish Community's large financial and fiscal autonomy, as well as its significant incentive to support the federal government due to the importance of services provided to the population, are key factors contributing to its 'aa' SCP.
  • All other ratings remain unaffected by the downgrade, with other key rating drivers remaining unchanged.
  • The entity's financial profile is assessed in the middle of the 'a' category under Fitch's rating case, reflecting a combination of a 'Stronger' risk profile and financial profile.
  • Fitch considers that the Flemish Community has a large incentive to support the federal government due to the importance of services provided to the population, including unemployment benefits.
  • This explains why the Flemish Community is not rated more than one notch above the sovereign.

Statistics:

  • Fitch has downgraded the Flemish Community's IDRs to 'AA-' from 'AA' following the downgrade of the Belgian sovereign to 'A+' from 'AA-' on June 13, 2025.
  • The Flemish Community's Standalone Credit Profile (SCP) remains at 'aa', two notches above the rating of Belgium.
  • In the 'Through-the-Cycle' scenario, Fitch's rating case incorporates a combination of revenue, cost, and financial risk stresses, based on 2020-2024 published figures and 2025-2029 projected ratios.
  • Fitch's rating case assumes a GDP per capita of $51,025 in 2022 and a forecast of $59,105 in 2026.
  • Real GDP growth is assumed to be 4.3% in 2022 and 1% in 2026.
  • Consumer prices are assumed to increase by 10.3% annually between 2022 and 2026.
  • The general government balance is assumed to be -3.6% of GDP in 2022 and -4.9% of GDP in 2026.
  • General government debt is assumed to be 102.7% of GDP in 2022 and 110.2% of GDP in 2026.
  • Net external debt is assumed to be 15.7% of GDP in 2022 and 29.6% of GDP in 2026.

Sources:

  • Fitch Ratings, "Fitch Downgrades Belgium to 'A+'; Outlook Stable" (June 13, 2025)
  • Fitch Ratings, "Fitch Affirms Flemish Community at 'AA'; Outlook Negative" (June 6, 2025)
  • Fitch Ratings, "Fitch Affirms Flemish Community at 'AA'; Outlook Negative" (2025)
  • European Central Bank, "Long-term interest rates - Euro area: General government debt" (2025)
  • International Monetary Fund, "Country Report No. 25/123: Belgium" (2025)
  • Data from 2025 is available upon request