Report on the development of budgetary management of municipalities, voluntary associations of municipalities and regions as at 31 December 2022
The revitalization of economic growth after the pandemic, which in 2021 was still slowed down by the government's restrictive measures, was disrupted this year by the Russian invasion of Ukraine. The war in Ukraine had a negative impact on the global economy, as it caused an energy crisis and also contributed to the growth of inflation and thus to the restrictive monetary policy of central banks. The conflict showed a weaknesses of the domestic economy, namely the energy dependence on the import of Russian components and the energy intensity of the economy in comparison with other states of the European Union. In the Czech Republic, the ongoing war caused a stagflation shock, i.e. higher inflation and at the same time lower growth of the real economy. It is important to note that December year-on-year inflation would have been 3.5 percentage points higher without the government's relief measures with high energy prices, i.e. a cost-saving tariff and a waiver of the fee on subsidized energy sources until the end of 2023. Even so, inflation reached the second highest value since the independent Czech Republic was established. Although at first sight it might seem that the economy of territorial self-governing units should suffer considerably as a result of the negative economic effects of the invasion, according to the results achieved, this is not the case. This year, budgetary management of territorial self-governing units continues to produce high surpluses, which, due to high inflation, leads to inefficient use of public money.
The budgets of territorial self-governing units, which had to face an economic downturn during the pandemic, have returned to good financial condition1. Nothing has changed this year either, as their economic surplus surpassed the economic results from the period of the second wave of the COVID-19 pandemic, but even from the period before the pandemic. Territorial self-governing units were able to face the economic downturn without the help of the state budget, as a result of sufficient own income (particularly strong annual growth of tax income), which contributed to a significant surplus of the operating balance2 and the amount of savings. Although the conflict in Ukraine has caused pressure to increase the spending side of the local governments, primarily in the form of spending on aid to Ukraine and its population, these expenses were to a large extent compensated from the state budget.
Gradual increase in the difference between the savings and debt can be considered as a negative phenomenon because it leads to inefficient use of public money. The growth dynamics of municipal and regional budget savings is several times faster than the growth dynamics of debt. This year, the territorial self-governing units continued the trend of increasing the balance of funds in bank accounts. During the period of extremely low interest rates, municipalities irrationally increased deposits in bank accounts and did not take advantage of the possibility of cheaper loans for investments, which, in connection with the ongoing inflation, led to the fact that funds in bank accounts lost their value. Regions and municipalities slightly increased their debt year-on-year towards the end of the year, which corresponds to the development of the basic interest rate, which has been permanently increasing since 2021 and which the Czech National Bank has kept at the current level since mid-2022. The slight increase in municipal debt in 2020, on the other hand, does not correspond at all to the gradual decline in basic interest rates, which made loans significantly cheaper. This negative trend in the form of saving money without the involvement of external sources of financing significantly increases the cost of this year's investment events.
Municipalities, regions and voluntary associations of municipalities in 2022 operated with a budget surplus of CZK 32.8 billion. The economic result decreased against last year (by 20.8%, i.e. CZK 8.6 billion), but in comparison with year 2020 (the period of the second wave of the COVID-19 pandemic), the surplus increased by 135.1%, i.e. CZK 18.9 billion and in comparison with the results of the pre-pandemic period (year 2019) also increased by 3.4%, i.e. CZK 1.1 billion (see chart no. 1).
The total revenues of local budgets reached CZK 743.5 billion in 2022 and increased by 9.7%, i.e. by CZK 65.7 billion. Adjusted total revenues3 amounted to CZK 560.8 billion. Their own revenues amounted to CZK 456.6 billion and increased by 15.6% in comparison with last year, i.e. by CZK 61.7 billion. This growth was caused by a rise in tax revenues, which reached CZK 387.3 billion and increased by 15.3%, i.e. by CZK 51.4 billion.
The total consolidated expenditures of local budgets in 2022 amounted to CZK 710.7 billion and increased by 11.7% in comparison with last year, i.e. by CZK 74.3 billion. Adjusted total expenditures3 amounted to CZK 528 billion. The current expenditures this year amounted to CZK 555.7 billion (CZK +50.3 billion) and the capital expenditures reached CZK 155 billion (CZK +24 billion). In 2022 local governments realized consolidated expenditures for aid to Ukraine in the amount of CZK 5.1 billion (mainly the capital city of Prague).
In 2022, the regions operated with a surplus of CZK 7.7 billion. The surplus decreased compared to last year, but exceeded the economic results from the period of the second wave of the pandemic. How described in chart no. 2 the total revenues of the regions this year amounted to CZK 313.4 billion and increased by 7.6%, i.e. by CZK 22.1 billion. Adjusted total revenues3 reached CZK 153.2 billion. Their own income reached CZK 102.3 billion (CZK +13.8 billion) and accounted for 66.8% of total adjusted revenues. Regions are less self-sufficient than municipalities, as they show a relatively higher dependence on received transfers, which is essential due to their position and function. Improvement in own income of regions was caused by the growth of tax revenues, which increased by 14.6%, i.e. by CZK 11.7 billion, to CZK 91.6 billion.
The total expenditures of the regions in 2022 amounted to CZK 305.7 billion and increased by 7.9% compared to last year, i.e. by CZK 22.3 billion. Adjusted total expenditures3 reached CZK 145.6 billion. This growth was caused by an increase in current expenses, which increased by 7.6% compared to last year, i.e.by CZK 19 billion, to CZK 268.6 billion. The transfers that the regions transferred to contributory and similar organizations reached CZK 202.1 billion and represent 75.2% of total current expenses. Most of these funds were intended for direct education costs.
In 2022 capital expenditure also increased by 10%, i.e. by CZK 3.4 billion, to CZK 37.1 billion, despite decrease of investment transfers. However, it is difficult to assume, whether this was caused by an increased investment activity or just by a significant increase in the price of construction materials. The increased investment activity corresponds to the fact that regions mainly invest before the end of the budget year. The regions even invested more than before the outbreak of the pandemic, by 15%. The regions realized expenses for aid to Ukraine in the amount of CZK 3.6 billion.
The debt of the regions (including contributory organization) amounted to CZK 25.3 billion in 2022 and increased by 2.2% year-on-year, i.e.by CZK 0.6 billion. The increase in regional debt since 2019 corresponds to a decrease in basic interest rates, which the Czech National Bank reduced to 1% in response to the pandemic in March 2020 and even to 0.25% in May. In times of low interest rates, loans have become an advantageous option to finance investments. Debt continued to grow in 2022, despite interest rates have increased by 3.25 percentage point since the start of the year to reach their historical level since 1999.
Deposits in bank accounts (incl. contributory organization) of the regions in 2022 amounted to CZK 71.2 billion, which represents a year-on-year increase in savings by 11.1%, i.e. by CZK 7.1 billion. As can be seen from graph no. 3, the balances in bank accounts of the regions have been growing dynamically in recent years, while the debt of the regions had a decreasing tendency in the years 2013–2019. The growth dynamics of savings is several times greater than the growth dynamics of debt.
Bank accounts (including contributory organizations)
Debt (including contributory organizations)
In 2022, municipalities reported a budget surplus of CZK 25.3 billion. The surplus fell in comparison with last year's balance by 24%, i.e. by CZK 8 billion. On the other side the balance exceeded the economic results from 2020 by 33.1%, i.e. by CZK 6.3 billion (see chart no. 4). In 2022 the capital city operate with a surplus of CZK 15.5 billion, with total revenues of CZK 120.3 billion and expenses in the amount of CZK 104.8 billion. Without the capital city, the total consolidated revenues of the municipalities amounted to CZK 317.2billion, expenses to CZK 307.4 billion, and the budget ended in a surplus of CZK 9.8 billion.
The total revenues of municipalities in 2022 reached CZK 437.5 billion and increased by 11.5%, i.e. by CZK 45.1billion compared to 2021. Adjusted total revenues3 reached CZK 415 billion. Their own income amounted to CZK 353.1 billion (growth of 15.7%, i.e. by CZK 47.8 billion) and represented the majority of total adjusted income. In comparison with the regions, the municipalities are self-sufficient and thus do not show significant dependence on received transfers. Increase in own income of municipalities was caused mainly by the growth of tax revenues, which increased by 15.5%, i.e. by CZK 39.7 billion to CZK 295.7 billion and thus reached their highest level.
The total expenditures of municipalities in 2022 amounted to CZK 412.2 billion and increased by 14.8%, i.e.by CZK 53.1 billion compared to last year. Adjusted total expenditures3reached CZK 389.6 billion. The growth was mainly caused by an increase in current expenses, which increased by 12.4% compared to last year, i.e. by CZK 32.5 billion, to CZK 294.4 billion. The capital expenditures by municipalities also increased against last year (specifically by 21.2%, i.e. by CZK 20.6 billion) and reached CZK 117.8 billion. Municipalities even invested more than before the outbreak of the pandemic, by 27.7%. The municipalities realized expenses for aid to Ukraine in the amount of CZK 1.7 billion.
Municipal debt in 2022 amounted to CZK 71.1 billion and increased by 2.2% year-on-year, i.e. by CZK 1.6 billion, but its amount is still lower than in 2020. Although the city of Prague planned record investments this year, it is incomprehensible why it didn´t take advantage of the extremely low interest rate situation and did not carry out its planned investment activities earlier.
Deposits in the bank accounts of municipalities in 2022 amounted to CZK 331.5 billion, which represents a year-on-year increase in savings by 10.2%, i.e. by CZK 30.8 billion. As can be seen from graph No. 5, the deposits have been growing dynamically in recent years (by 198.5% between 2013-2021, while municipal debt fell by 22.9% over the same period). Like other municipalities, the capital city of Prague accumulated deposits in bank accounts, despite low interest rates.
Bank accounts (including contributory organizations)
Debt (including contributory organizations)
1 The restrictive measures had an impact especially on the management of the regions, which in 2020 recorded the largest deficit in history. On the contrary, the impact on the management of the municipalities was minimal, mainly as a result of state aid in the form of the payment of an extraordinary non-targeted contribution to the municipalities and savings from previous years.
2 Difference between current income and current expenditure.
3 The total revenues and expenditures without direct education costs and subsidies for private schools, which regions and capital city of Prague directly allocated to the relevant schools and school facilities.