Their deficit is supposed to amount to only 1.6 percent of gross domestic product (GDP). This is only roughly half the level compared to the relevant criterion for the adoption of the euro, which corresponds to a value of three percent of the deficit in relation to GDP.
In 2025, when regular parliamentary elections are to be held, the deficit of public finances will fall to just one percent of GDP, according to the CNB. The basic stabilization of public finances, which is expected to occur next year, will therefore be further consolidated.
The CNB’s current outlook confirms that the risk of deterioration of the Czech Republic’s creditworthiness rating has decreased significantly in recent months. Last month, the rating agency Standard & Poor’s described the state of domestic public finances as “solid” and the debt level as “reasonable”.
It left the rating at the level that has been unchanged since 2011, and did not change the rating outlook either – it still considers it “stable”. Neither the rating nor the rating outlook for the Czech Republic are downgraded this year by the other two world-renowned rating agencies, Moody’s and Fitch Ratings.
A further improvement in the state of Czech public finances from next year will be ensured by the already approved consolidation package.
Thus, Fial’s government should fulfill its key promise by the 2025 elections, namely the stabilization of domestic public finances. In fact, the CNB says in its current forecast that the governing parties will be able to say before the elections that they have “stopped the country’s rapid indebtedness” – and that they will be right.
The author is the Chief Economist of Trinity Bank
(Editorially modified)
