Fiscal Outlook of the Czech Republic (May 2014)
Fiscal policy in the Czech Republic was characterized by its procyclical nature in recent years. The multiple decreases in economic activity were accompanied by fiscal restriction, reaching almost 4.5 percentage points of GDP for the years 2010–2013. As a result, the general government deficit was decreased nearly to the zero structural balance (–0.3% of GDP). For 2014 the state budget and budgets of state funds were drawn up less procyclically, with an estimated overall result for general government sector of –1.8% of GDP. Fiscal effort for year 2014, when the domestic economy is supposed to be in the conditions of fragile recovery, is thus estimated to be –1.0 percentage point of GDP. Slight countercyclical effect of fiscal policy should continue also in 2015, mainly due to the advancement in termination of some measures from the consolidation package of 2012 and due to the implementation of selected government priorities. The general government deficit should thus reach 2.3% of GDP. Structural balance in 2016 and 2017, when the economy should operate close to its potential, remains constant. Fiscal policy will leave full space for the effect of automatic stabilisers, which was recommended for the Czech Republic by many reputable international institutions (see e.g. IMF, 2013 and OECD, 2014). The primary government objective for the current year is to close the excessive deficit procedure. The assessment would be based not only on the factual general government outcome from the last year, but also the set of fiscal policy in credible and sustainable way under the excessive deficit limit for the future will be examined.
On 28 April 2014, the Czech government approved the update of the Convergence Programme of the Czech Republic, which presents the government macroeconomic policy, with an emphasis on fiscal issues until 2017, as well as a weak earlier approved the National Reform Programme with a description of upcoming structural reforms. The May Fiscal Outlook is conceived as a supplement to the Convergence Programme, from which the data and information are drawn and are further elaborated. Fiscal outlook is based on the adjusted April Macroeconomic Forecast of the Ministry of Finance, on the results of Debt and Deficit Notifications of the Czech Statistical Office approved by Eurostat as of 23 April 2014 and on the Debt and Deficit Notifications of other European Union member states published by Eurostat (closing date 5 May 2014) and published yields on ten-year government bonds by the European Central Bank (closing date 14 April 2014) respectively, for the purpose of international comparison.
Current and expected macroeconomic and fiscal developments are briefly outlined in the first chapter. We envisage the gradual pick up in the real GDP growth dynamic from 1.7% in the current year to 2.5% in 2017. Primary contributors to the growth should be the household consumption and also later higher growth of investments. The general government deficit should decrease to 1.7% of GDP by 2017, with the neutral effect of fiscal policy at the end of the forecast horizon. Fiscal policy has long been perceived as credible, which was confirmed for example by the Fitch agency rating evaluation (16 May 2014) and by actual yields on ten-year government bonds. The Czech Republic belongs to the quarter of European Union countries with the lowest bond yields.
Government sector revenues and expenditures in 2013 and 2014, their autonomous development, discretionary changes and the debt and deficit structure are closely descripted in the second chapter. Two thematic boxes in this chapter are devoted to the uptake from the EU funds, where both, the programming period 2007–2013 and current period of 2014–2020 are concerned. The uptake from the past programming period is analysed based on the detail information on the subsidy recipients, costs of individual projects and in terms of comparison between institutional sectors of the economy.
The last chapter expands the Convergence Programme with a review of the budgetary outcome based on cash‐flow methodology.