Note concerning rating 2020

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The Flemish Community's stand-alone credit profile (SCP) is assessed at 'aa+' reflecting the combination of a 'Stronger' risk profile and debt sustainability metrics assessed in the upper end of the 'a' category under Fitch's rating case scenario. The SCP also reflects peer comparison.

The Flemish Community's SCP of 'aa+' is two notches above the Belgian sovereign rating. In Fitch's view the Flemish Community meets the conditions for it to be rated above the sovereign, including institutional recognition and financial and fiscal autonomy. A change in the responsibilities would not be possible without a constitutional change, which requires a two-third majority in each House (House of Representatives and Senate), and hence the approval of a majority of Flemish members. As a result, the central government does not have the power to unilaterally change the powers exercised by the Flemish Community, which protects the latter against any legal interference.

The revenues transferred by the national government to the Flemish Community are also protected by the Special Finance Act. An amendment of this Act requires a two-thirds majority in the Federal Parliament, as well as a majority in each language group. Accordingly, it may not be amended without the consent of the Flemish members of federal parliament. As a result, Fitch estimates that the federal government is prevented from making unilateral decisions that might alter the Flemish Community's finances and this offers the latter high visibility over time.

The Flemish Community also benefits from significant fiscal autonomy as regional taxes and the regional share of PIT represented more than 30% of its operating revenue in 2019.

In a stressed situation affecting the sovereign, Fitch believes that the Flemish Community would be able in some scenarios to continue servicing its debt despite a default from the sovereign, which is reflected in the one notch differential between their ratings.

Fitch believes that a sharp deterioration of sovereign finances would likely have an impact on the Flemish Community, and that a default from the sovereign would have a significant impact on the Flemish Community, including a sharp increase of its cost of borrowing, although not necessarily leading to an immediate default by the Flemish Community itself. Fitch also considers that Flanders has a strong incentive to support the federal government due to the importance of the services provided by the latter to the population, including unemployment benefits. As a result, we consider that the Flemish Community may not be rated at more than one notch above the sovereign, and that a downgrade of the sovereign would be reflected in the ratings of the Flemish Community