Fiscal Outlook of the Czech Republic (November 2013)
Since the April update of the Convergence Programme of the Czech Republic and the last issue of the Fiscal Outlook of the Czech Republic this May, events have started to take an unexpected turn. In June, a part of the territory of the Czech Republic was stricken by floods and an unsustainable political situation resulted in the resignation of PM Petr Nečas’s Cabinet in the middle of the same month. According to the preliminary statistical information, the second wave of the economic recession has also probably ended.
In response to the government’s resignation, the President of the Czech Republic appointed a new government led by Jiří Rusnok. Following a vote of no confidence in the Chamber of Deputies, Jiří Rusnok’s Cabinet resigned in August. In accordance with their constitutional powers, 140 Members of the Parliament voted for the proposal to dissolve the Chamber of Deputies, which the President of the Czech Republic carried out on 28 August 2013. One of the first tasks of the new Chamber of Deputies, established after the snap elections in October, will be to discuss and approve the bill on the state budget for 2014 and agree new amounts for the medium-term expenditure framework for the state budget and budgets of state funds for 2015 and 2016.
According to the Czech Statistical Office’s current data, the Czech economy emerged from an 18-month long recession, while the confidence indicators and composite leading indicators suggest that economic activities will continue to recover in the next few quarters. Economic development in the countries of the main trading partners and still weak domestic demand for imports have had a positive impact. The low inflation rate, the monetary policy of minimal interest rates and investors’ confidence in Czech government bonds, as well as the still unsolved issues of the government sector in the Eurozone countries and the weak recovery in the EU, combine to keep revenues from the reference 10-Y government bonds of the Czech Republic at very low levels, i.e. at 2.1% on average from January to September 2013.
The submitted Fiscal Outlook is based on the Macroeconomic Forecast of the Ministry of finance from October and the draft state budget and state funds budgets for 2014, including the draft medium-term outlook until 2016. The budgetary documents reflect PM Rusnok’s Cabinet programme, in particular the pro-growth orientation of economic policy. Nevertheless, the overriding target is to leave, based on the result of general government’s performance in 2013, the excessive deficit procedure. Therefore, fiscal targets in the form of government sector deficits have been set so that fiscal policy weakens economic growth as little as possible while at the same time meeting the main obligation arising from the Stability and Growth Pact in terms of the budget deficit.
In 2013, the result of the government sector balance is estimated at −2.9% of GDP. The same values formed the basis on which fiscal targets for 2014 and 2015 are defined. In 2016, the government sector balance should reach −2.8% of GDP. In terms of the expected position of the economy in the economic cycle, this is an expansive fiscal policy.
Thanks largely to the reversal of the provision created by pre-financing the state debt from the last few years, government sector debt should not increase so quickly in the monitored horizon. Nonetheless, in 2016 it should reach nearly 50% of GDP, which would represent an increase of 3.8p.p. compared to the end of 2012.
A special chapter of the autumn issue is devoted to the topic of excessive deficit procedures in the European Union Member States. We have included this matter precisely because of the Czech Republic’s own efforts to end this procedure. With respect to the procedures already ended in some EU countries over the last two years, or their planned ending, or, on the contrary, the extension of the procedure experienced by other countries, as well as the interpretation of the European Commission, this chapter becomes highly relevant.
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Methodological Manual to the Fiscal Outlook of the CR
ISBN 978-80-85045-57-4
The Methodological Manual of the Ministry of Finance’s semi-annual publication Fiscal Outlook of the Czech Republic aims to explain key principles of main methodologies used for recording in the public finances and to interpret selected terms used in the publications Fiscal Outlook, Convergence Programme and Macroeconomic Forecast. The main focus of the Manual is on easy comprehensibility of interpretation. Presented information were put together with an intent of selecting only key aspects necessary for understanding of the given terms while preserving factual correctness. Because of the significant extent of information summarised in the Manual it was not possible to avoid a certain degree of simplification. Accurate and detailed information can be looked up in relevant methodological manuals and other related documents, whose short list is given at the end of the document.