A Looming Financial Crisis in the Czech Republic?

Abstract

This chapter analyzes Czech fiscal policy, its development, its outlook and its main flaws. We confirm the precarious condition of Czech public accounts. The share of revenues in GDP is lagging behind expenditures that are set to rise. The easy cuts in expenditures have already been made, social expenditures swell as the population ages, and past debts are slowly maturing. Moreover, hidden risks, implicit in the system of public finances during the transition period, are becoming ever more apparent. Since the financial capacity of the budget is overburdened by social commitments, governments try to find ways in which functions vital for the completion of the transition can be carried out without their financing taking the form of present cash outlays. All together, we foresee deficits of about 5% of GDP annually in the coming years. Public debt would therefore balloon to roughly 60% of GDP within a decade.