Convergence Programme of the Czech Republic (April 2017)

Dept 37 - Economic Policy
Dept 37 - Economic Policy


  • Convergence Programme

ISSN 1804‐798X

The document specifies the basic aggregate fiscal data and the forthcoming most important measures in the form of medium-term budgetary impacts of the government's fiscal strategy.

Convergence Programme of the Czech Republic (April 2017)

Since the great recession in 2009, when real gross domestic product fell by 4.8% and the deficit of general government sector deepened to 5.5% of GDP, annual improvements of general government sector performance have been almost 0.9 pp. The successful consolidation trajectory was accomplished by the surplus of nearly CZK 28 billion (0.6% of GDP) in 2016. The record-breaking result of the general government sector performance was not due to the position of the economy in the economic cycle but it was primarily a result of structural improvement in public finances performance. The last year situation is emphasised by the decrease in amount of general government debt by CZK 81 billion to 37.2% of GDP, accompanied by the phenomenon of low yields which have been even negative for the bonds with maturity up to six years on the secondary market.

Prudent management and long-term sustainability of public finances should also be ensured through adoption of laws related to the budgetary responsibility. In this year, expenditure frameworks of the state budget and state funds are prepared on the basis of numeric fiscal rule compatible with the medium-term objective of the CR for the first time. The process of implementation of the Council Directive 2011/85/EU should thus be finalised and with that the fiscal framework should reach modern and up-to-date level.

The submitted update of the Convergence Programme of the CR for the period 2017–2020 was approved by the Government of the CR on 24 April 2017 and is consistent with the National Programme of Reforms of the CR. The Convergence Programme is fully in line with the rules defined in the updated Code of Conduct on the content and format of the Programmes of Stability and the Convergence Programmes. In April 2017, the document was also presented and discussed with the relevant committees of the Chamber of Deputies and the Senate of the CR and taken into account by both chambers. The Opinion of the Council of the EU has been taken into account in the relevant committee of the Chamber of Deputies and discussed by the Senate with the recommendation to the Government to take the Opinion of the Council into account.

The Convergence Programme of the CR is divided into seven interlinked chapters. Chapter 1 presents the aims and objectives of fiscal policy of the Czech Government, basic constituents of structural policies as well as the monetary policy framework.

The macroeconomic scenario of the Convergence Programme, stemming from the April Macroeconomic Forecast of the MF CR, is presented in detail in Chapter 2. In 2016, the one-off factors which were the cause of the strong growth in 2015 came to an end. As a result, the economy slowed its growth and real GDP for the entire year increased by 2.4%. A significant influence was a drop in investments co-financed from EU sources, which was a typical phenomenon in many EU member states using the programme financing. Inflation accelerated significantly at the end of 2016 and gradually exceeded the Czech National Bank's inflation target. The unemployment rate continued to decline and is currently the lowest in the EU.

The general government sector performance in 2016, forecast for 2017 as well as the Government's fiscal strategy in future years are the subject of Chapter 3. The Chapter is based on results of the Notification of government deficit and debt, confirmed by Eurostat on 24 April 2017, and on further developed economic and politic objectives of the Government known by the cut-off date for data sources. For 2016, the surplus of the general government sector has been notified at 0.6% of the GDP and the government debt at 37.2% of the GDP. The forecast for 2017 anticipates a lower surplus of 0.4% of GDP and further decrease in surplus to 0.3% of GDP in the following year. The structural balance in the same period should remain more or less balanced. Thus the CR should continue to fulfil its medium-term budgetary objective.

In Chapter 4, the macroeconomic and fiscal scenarios are verified by comparisons with forecasts by other public and private independent institutions including evaluation of macroeconomic forecast by an independent experts' panel. Moreover, the scenario is supplemented by a sensitivity analysis which simulates the impact of alternative scenarios of economic development based on different interest rate, lower economic growth of main economic partners in the EU and higher crude oil price. An equally important part of this chapter is also an analysis of deviations of the current scenario from the scenario contained in the last year update of the Convergence Programme of the CR.

In Chapter 5, the aspects of long-term sustainability are described. The chapter informs on the state of the pension system and the public health insurance system. In the context of long-term sustainability, the chapter describes current pension projections and also pays attention to the size and structure of the general government guarantees.

Chapter 6 deals with qualitative aspects of revenue and expenditure in the general government sector. It is primarily about the description of intended and implemented changes in the tax system which should lead to prevention of tax evasion and to better tax collection. Moreover, measures to rationalise general government expenditure are presented.

The last chapter 7 deals with implemented or planned changes in the institutional environment of fiscal and budgetary policy, transparency of public finances and strengthening of their effectiveness. Implementation of measures related to budgetary responsibility rules, range and quality of published data or measures countering corruption are emphasised here.