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This Selected Issues paper analyzes Belgium’s fiscal stance using a structural stochastic model. This note uses a theoretical model that explicitly accounts for the trade-offs between the short-term cost of fiscal tightening and the long-term gains associated with higher fiscal buffers. This paper shows that once the current crisis is over, rebuilding fiscal buffers is essential to helping Belgium confront the next shock from a stronger fiscal position. Overall, this illustrates a major motivation for a credible medium-term fiscal consolidation strategy. When a government reduces debt, it increases its capacity to react to shocks later. This entails a short-term cost that is, in the case of Belgium, worth the effort as this capacity to smooth future shocks increases future welfare. In addition, a large capacity to react with fiscal policy reduces the risk of long-lasting effects of a large crisis. Historical data show that in the past, the Belgium government’s reaction to the cycle was limited to a single event. By contrast, if Belgium could firmly anchor public debt on a downward path, future governments would be able to offset downturns while keeping debt sustainability concerns under control.

Fiscal policy. --- Taxation. --- Debt Management --- Debt --- Debts, Public --- Economic theory --- Fiscal multipliers --- Fiscal Policy --- Fiscal policy --- Fiscal space --- Fiscal stance --- Macroeconomics --- Macroeconomics: Production --- Output gap --- Production and Operations Management --- Production --- Public debt --- Public finance & taxation --- Public Finance --- Sovereign Debt --- Belgium

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Countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region and those in the Caucasus and Central Asia (CCA) responded to the COVID-19 pandemic with swift and stringent measures to mitigate its spread and impact but continue to face an uncertain and difficult environment. Oil exporters were particularly hard hit by a “double-whammy” of the economic impact of lockdowns and the resulting sharp decline in oil demand and prices. Containing the health crisis, cushioning income losses, and expanding social spending remain immediate priorities. However, governments must also begin to lay the groundwork for recovery and rebuilding stronger, including by addressing legacies from the crisis and strengthening inclusion.

Saudi Arabia --- Investments: Energy --- Exports and Imports --- Finance: General --- Labor --- Macroeconomics --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Crisis Management --- Sports --- Gambling --- Restaurants --- Recreation --- Tourism --- National Government Expenditures and Education --- Energy: General --- Fiscal Policy --- Remittances --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Education --- Health economics --- Monetary economics --- Hospitality, leisure & tourism industries --- Investment & securities --- Finance --- Labour --- income economics --- International economics --- COVID-19 --- Health --- Crisis management --- Crisis recovery and resolution planning --- Fluctuating oil revenues --- Organization of Petroleum Exporting Countries (OPEC) --- Monetary policy --- Regional Economic Outlook --- Economic forecasting --- Oil --- Fiscal space --- Stress testing --- Credit --- Oil and gas leases --- Petroleum industry and trade --- Fiscal policy --- International finance --- Financial services industry --- Financial risk management --- Covid-19 --- Income economics