The Czech Republic has no plans to keep the state treasury in order after the outbreak. Moody’s warned in a statement on Monday that this would be a negative factor for the state’s reputation in the financial markets. According to its author Stephen Dick, this is not a matter of underestimation, but the problem with the Czech budget is that it imposes new costs of a permanent nature as part of smooth operations that need to be addressed sooner or later. “We will see what happens after the elections of the new government,” the analyst said in a telephone interview with Respect.
Your report begins by pointing out that the “meaningful scenario” of how to stabilize public funds after the current temple derailment is not in the current government’s budget perspective and that it is “debt negative.” What exactly does it mean when a credit rating agency finds negatives for a country’s debt? Bad rating?
With the standard outlook we are behind the Aa3 rating and at this time we see no reason for a correction. But for each country, it faces some challenges regarding its rating. Chekhov is no exception in this regard.
What challenges do they face?
One is long overdue, which we have been referring to for many years. This is related to the negative impact of population aging on population and public finances, government debt and economic growth. Not only do we, but your National Budget Council, clearly explain how the debt burden will increase after 2030 without pension reform. In Europe, you can find countries like Denmark that have solved this problem and set up pension systems so that they can financially absorb older people without putting extra pressure on the state budget. This is different in the Czech Republic, but it is a long-standing problem where it is necessary to wait for the government’s reaction until the country approaches this position. Another challenge is the government’s response to the deteriorating budget situation in relation to the epidemic.
What is this intimate challenge?
This is nothing particularly Czech, as other countries also brought in budget measures during epidemics. This also led to large budget deficits. But there are countries that are already signaling how they will bring their funds to default. As for the Czech Republic, we wanted to point out that such a coordination strategy is not in the budget perspective of the current government and what the new government will bring to this matter after the elections is important.
The current government argues in principle that stimulus packages are now being implemented by all countries, that the weak economy needs state aid, and that the Czech debt is too low to receive such intervention. Is there a weakness in this argument?
In the Czech context, the government is in a very stable position to actually enter the epidemic. A balanced budget, with low debt and low repayments, but without large foreign currency loans and with a favorable credit structure for foreign borrowers. It should be added that the Czech National Bank is operating reliably and predictably and the economy is performing well. So you had a lot of room for financial stimulation.
Courtesy 18/2021: How to Start a Czech Economy
Did we use it properly?
There is definitely a debate about how someone structured their budget stimulus and who targeted it. As for the Czech Republic, they had a bigger share – bigger than other places – of costs, which are long-term in nature and would be bad to recoup. For example, higher pensions. This is reflected in the outlook that the government has now released until 2024. There are very deep state budget deficits even after the epidemic and the economy has returned to normal.
Do you believe the next government will come up with an “integration strategy”?
We understand that elections are approaching and that this is a matter to be resolved later. But we take into account that there may be some time for post-election political negotiations on creating a new humidity and this will delay financial consolidation.
Why do we need this? The United States and Europe are now paying more in debt. Want to fit within the credit limit, or how to use it?
There is no magic number that sets the ceiling for the right loan. Chekia has no problem with the amount of debt. Rather, it is really about the structure of costs. The ratio between fixed costs, which are repeated each year, and one-to-one support investments.
Will today’s politics lead Sequoia to catch the worst crash?
Last year, the Czech economy lost 5.6 percent, and if we add how much it could have grown under normal circumstances, you are somewhere around minus seven or eight percent. In our opinion, it is very unlikely that you will immediately return to the original curve. Conversely, over the next three or four years, you will continue to be at a parallel level somewhere less than three or four percent.
Why? Don’t we have to safeguard and secure it? Isn’t this the perfect opportunity now?
Your economy is highly synchronized with Germany by industry, so it will grow, but grow at the same pace. There are possibilities for improvement in terms of value added – but also under conditions of deep reforms that will help increase innovation and productivity. So, reforms, for example, in the field of education or in the business environment.