Credit rating agency Moody's Investors Service late Friday said it was downgrading Belgium’s local and foreign currency government bonds by two notches.
The announcement came after markets closed.
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From its high rating of Aa1, Belgium’s score falls to Aa3.
Moody's also warned it has a negative outlook for Belgium, meaning it could downgrade in a couple of years.
Moody’s cited rising yields for Belgian bonds, the growing risk to economic growth created by the need for tax hikes or spending cuts and difficulties in reaching a political consensus on how to cut the deficit as well as uncertainties about how much the government of Belgium will be on the hook for shoring up banks, including the rescue of troubled Franco-Belgian bank Dexia.
In October, the government bought the Belgian unit of Dexia for the equivalent of $5.4 billion Cdn and guaranteed up to $74 billion of the bank’s liabilities for up to 10 years.
Belgium’s public debt is currently equal to its annual economic output.
Rival rating service Standard and Poor's downgraded Belgium by one step to AA on Nov. 25 and Fitch Ratings put the country on notice for a possible downgrade earlier on Friday.