The Czech Republic is heading for a record state budget deficit this year, and the government also expects a high deficit for next year, currently estimated at 320 billion korunas (€11.75 billion). However, based on the current Eurostat data, Czechia is still one of the least indebted countries in Europe.
According to economic forecasts, at the end of 2020, the Czech Republic’s debt should amount to 39.4 percent of its GDP, which is the fourth-best result in the EU. Only Estonia, Bulgaria, and Luxembourg will be better off.
At the other end of the scale are Portugal, Italy, and Greece, whose debt is already more than double their entire GDP.
The rate of indebtedness in the Czech Republic is also lower than the EU average, said Trinity Bank analyst Lukáš Kovanda.
“Belgium, Spain, France, Italy, and Slovakia saw the highest debt growth during the peak of the coronavirus crisis. In Czechia, public debt compared to GDP increased by double digits in the second quarter,” he added.
Even the member of the Czech National Bank board, Aleš Michl, says he is not worried about the increase in the Czech debt caused by additional government expenses, which should support the economy in difficult times, according to Czech news portal Idnes.cz.
“The important thing is how the debts are financed. And currently, the demand for Czech bonds is four times higher than the supply. The period of growth will come, and then, it will be necessary to rebalance the budget as it was in the past three years,” said Michl.
The Office of the Czech Fiscal Council recently criticized the government for its vague idea of how to regain control over public finance in the coming years.
“The budget is set as very expansive, without specifying how the return of public finances to a sustainable level will take place. With the current parameters, there is a risk that the Czech state budget deficit will be even higher in nominal terms in 2022 and 2023 than in the case of the disproportionately larger Germany,” the council warned.
