The worsening fiscal positions, in some cases even leading to a fiscal crisis, in both developed and developing countries brought the issues of debt and fiscal sustainability to the fore of the public policy debate. Debt dynamics are a key determinant of a country's macroeconomic environment and investment climate. This paper introduces an accounting framework to study the evolution of public debt. Subsequently, this framework is applied to analyze the main determinants of the debt-to-GDP ratio of Belgium for the period 1995-2014. The framework underscores the importance of the debt composition, management and structure, the exchange rate and the fiscal stance for debt dynamics, all impacting fiscal vulnerability. We divide our analysis in three parts: i) the years before the introduction of a single currency in the eurozone; ii) the subsequent years, up to 2007 when the Global Financial Crisis (GFC) broke out; and iii) the period from 2008 to 2014.

The results show that: (i) Belgium succeeded in quite drastically reducing its public debt in the run-up to joining the eurozone, and was able to continue doing so up until the Global Financial Crisis (GFC) struck in 2007-2008. This was chiefly accomplished by running large primary surpluses. Moreover, it was aided by a benign economic environment, i.e. relatively high real GDP growth; (ii) the bail-out of the financial sector in 2008 caused public debt to soar. Subsequently, anemic growth in combination with the cost of servicing an already high stock of debt, resulted in the debt-to-GDP ratio steadily creeping up. Primary deficits only played a minor role in the increase of debt, especially given the severity of the GFC.