Growth of Czech debt is the second-fastest in the EU

The Czech Republic’s government debt relative to gross domestic product (GDP) rose by 6.3 percentage points to 44.1 percent of GDP in the first quarter of this year. It was the second-largest growth among the countries of the European Union, after Cyprus. At the same time, Czech government debt is still the sixth-lowest in the EU. This follows from current Eurostat data, which was pointed out by the consulting company Moore Czech Republic.

Across the European Union, government debt rose by 2.4 percentage points to 92.9 percent of GDP, with 23 of the 27 EU member states experiencing rising debt in the first quarter.

“The COVID-19 pandemic peaked in the Czech Republic in the first quarter. At one time, we were one of the most affected countries in the world. It is the increased expenses for the fight against the pandemic and especially the measures restricting the full functioning of the economy that are the main reason for the above-average growth of public debt,“ said Petr Kymlička, a partner at Moore Czech Republic.

However, according to Kymlička, the expenses associated with the pandemic are not the only causes of the debt increase in the case of the Czech Republic. “The decline on the revenue side associated with the abolition of the super-gross wage was crucial. We must also not forget that we will have elections this year, there is usually no room for reducing government debt at such time,” he added.

“The development of the Czech government debt for the first quarter corresponds to the fact that we advantageously pre-financed all this year’s government debt payments before raising interest rates by the Czech National Bank. We therefore assume that the current total debt will not increase for the rest of the year. That is, that next quarter we will be among the countries with the lowest or zero increase in debt,“ the ministry of finance said on Wednesday.

Slovakia maintained its debt level at 60.3 percent of GDP during the first quarter. Debt fell in the first quarter in Denmark and Lithuania. At the same time, Denmark replaced Czechia in the fifth position with the lowest debt in the quarter.

“If there is no systemic consolidation of the state budget in the coming years, we will most likely move up the list of the most indebted countries,” warned Kymlička.

The total public debt is expected to rise to 44.8 percent of GDP this year, the Ministry of Finance expects. It is projected to be 48.2 percent in 2022 and close to 55 percent of GDP in 2024.

According to European Union rules, debt should not exceed 60 percent of GDP under standard conditions. However, the EU has temporarily suspended the application of the rules of the European Union’s Stability and Growth Pact due to the pandemic.

Title image: The Minister of Finance Alena Schillerová