Friday, 25 April 2014

Deficit rise in 2012 won't affect market confidence in ČR, experts say

29 November 2012

Prague, Nov 28 (CTK) - This year's growth in the government sector deficit to 5 percent of gross domestic product (GDP) over property settlement between the Czech state and churches will not endanger the Czech Republic's credibility in financial markets, analysts polled by CTK said yesterday.

They said the passed law on property settlement will impact on the 2012 state budget as a one-off accounting operation that will not worsen the structure of the deficit.

The gap was originally expected to reach 3.5 percent of GDP.

In the law the state pledged to pay churches Kc59bn gradually over the next 30 years while the sum may rise up to some Kc90bn including inflation.

Finance Minister Miroslav Kalousek said the one-off expenditure arises from the European Union's methodology.

In a debate on the draft state budget for 2013 in the Chamber of Deputies yesterday, budget revenues were approved at Kc1,080.8bn and expenditures at Kc1,180.8bn, with deficit at Kc100bn.

"The church restitutions are not a problem for financial markets," said UniCredit Bank chief economist Pavel Sobisek.

"The one-off, Kc59bn, growth in the deficit will be an accounting operation that has no immediate impact on the borrowing needs of the state," said Sobisek.

The European Commission, financial markets and ratings agencies will distinguish between the one-off accounting operation and the structural deficit of Czech public finance, said Patria Finance chief economist David Marek.

"The church restitutions, however, raise debt of the government sector in GDP and this is not a one-off issue as the restitutions will affect the ratio also in the years ahead," said Marek.

The Czech government debt has not yet climbed to dangerously high levels, but it is growing and the church restitutions will push it higher. It will complicate the governments' efforts aimed at stabilising the debt vis-a-vis GDP at reasonably low levels, said Marek. Moreover, limits for the debt-GDP ratio in the constitutional bill on budget responsibility set at 40, 45, 48 and 50 percent of economic performance can be a problem.

"Government performance this year and the church restitutions will push the debt figure to 46 percent of GDP in the current year," said Marek.

"Given the next year's deficit projection, the debt may finally surpass the 48 percent ceiling vis-a-vis GDP," he added.

Under the budget responsibility draft, this would mean that for the year 2014 the government would have to present a proposal for a balanced or surplus state budget, budget of state funds and budgets of health insurance companies, said Marek.

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