Convergence Programme (April 2013)

Convergence Programme of the Czech Republic (April 2013)

Dept 37 - Economic Policy Department
Dept 37 - Economic Policy Department


  • Convergence Programme

Convergence Programme of the Czech Republic (April 2013)

The update of the Convergence Programme of the Czech Republic for 2013-2016 is exceptional in several ways. At the beginning of May, the Czech Republic (CR) will enter its tenth year of membership in the European Union (EU). It is also the last year taken into account for proper conclusion of the excessive deficit procedure maintained with the CR. Last but not least, this year is important in terms of anchoring economic policy coordination that is the year for finishing preparations, negotiations and approval of the Czech budgetary and fiscal framework reform.

Although institutes were already set up at the end of 2011 by a set of directly applicable regulations of the European Parliament and the Council of the EU to bring about a significant deepening and strengthening of multilateral budgetary surveillance and strengthening the coordination of fiscal, macroeconomic and structural policies in the EU, further progress in the fiscal and budgetary sphere will be achieved next year, when countries of the EU would have to implement the Directive of Requirements for Budgetary Frameworks of the Member States into their national regulations. As of the same date, acceptance of the parameters of budgetary discipline and automatic correction included in the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is required; although the CR has not accepted the Treaty, it intends to accept the essence of it in the budgetary framework reform.

The submitted update of the Convergence Programme (CP) of the CR was approved by the Government of the CR on 24 April 2013 and is consistent with the National Reform Programme of the CR, approved by the Czech government on 17 April 2013. The CP corresponds to the rules established in the updated Code of Conduct (September 2012) of the Stability and Growth Pact. In April, the document was also presented and discussed with the substantively relevant committees of the Chamber of Deputies and the Senate of the Parliament of the CR.

This update of the CP ensues from the mandate of the current coalition government that set out a number of ambitious reform steps in its Policy Statement from 4 August 2010, including a reform of public finances, enhancing transparency in dealing with public funds, public procurement and restricting corruption. The government also declared its intention to reform the fiscal framework.

Structural reforms aimed at improving long-term sustainability of public finances were prepared or adjusted in accordance with the Annual Growth Survey 2013 (EC, 2012c) and Recommendation of the Council to the Excessive Deficit Removal from 2 December 2009 and with Opinion of the Council to CP from 12 July 2011 and 10 July 2012. Characteristics of structural reforms are included in a number of the CP chapters; nevertheless, fiscal impacts have only been specified for the more important ones among them.

The CP is divided into seven chapters. The first chapter lists the main directions where the CR has been headed in recent years and the future course. The chapter reflects the Excessive Deficit Procedure having been launched with the CR, which recommends the general government to bring the deficit below 3 % of GDP in a credible and sustainable manner in 2013. The relevant committees of the Czech Parliament were informed of all the EU Council's past recommendations.

The CP's macroeconomic scenario is based on data available as of 25 March 2013. Even when political factors are ruled out, future development is encumbered with considerable uncertainties. The main sources of risks result from problems in the euro zone and transmissions of negative external shocks to the Czech economy. For 2013, we currently expect stagnation with an outlook of slight recovery in the following years (for more details - see Chapter 2).

The fiscal forecast discussed in Chapter 3 as well as the economic result which the government sector performance attained in 2012 proceed from the results of the April fiscal notification (closing date for data sources 5 April 2013). We expect the government sector balance for 2013 to amount to -2.8 % of GDP. This year, the general government debt is likely to rise to 48.5 % of GDP. In the coming years, the government is resolved to take care of public finance sustainability, not to procyclically affect the economy by fiscal restriction and to renew confidence in the economy by guaranteeing stability of the business environment.

Chapter 4 follows up with a sensitivity analysis of short-term shocks influencing development of the Czech economy and the government sector. Verification of the CP's macroeconomic framework from forecasts by independent institutions and an explanation of the most important differences compared to the previous year CP update form an equally important part of this chapter.

Chapter 5 monitors long-term impacts of the current pension system. Particular attention is paid to temporary limitation of pension indexation as well as introduction the voluntary fully funded old-age pension pillar. The chapter concludes with an overview of the contingent liabilities.

The final two chapters deal with the qualitative side of public finances. The chapter addresses changes boosting the quality of public finances on both revenue and expenditure side (Chapter 6) and discusses changes in institutional relations and in the system of public administration, including the reform of budgetary framework (Chapter 7).