What are the main problems of the Czech Republic
The Supreme Audit Office (SAO) has published its annual report for the year 2022, and the Czech Republic’s main macroeconomic problem appears to be the worsening structural deficit in the state budget, mainly due to an increase in compulsory expenditure and rising debt. Furthermore, the country’s domestic inflation is the fifth highest in the European Union, which significantly reduces the population’s standard of living. In last year’s annual report, SAO President Miloslav Kala states that stabilising the public accounts is impossible without reforms to the pension, health and social security systems, and also states that it would be possible to make savings in the subsidy system, which is considered excessive and unmanageable. He goes on to admit that the Czech Republic’s economic condition last year was only marginally affected by the war in Ukraine and its aftermath, with most of the shortcomings noted in the report having almost nothing to do with the war. In addition, on Thursday, 30 March, Prime Minister Petr Fiala (ODS) stated that the government would like to reduce the structural deficit by 1% of GDP (Gross Domestic Product), i.e. about 70 billion crowns per year, and a law was also passed in Parliament reducing the pension increase in June this year, which should, in theory, bring savings in the years to come.
The economic situation of the Czech Republic in 2022
Last year, the economic balance of the government institutions sector ended with a deficit of 3.6% of GDP, which represents a year-on-year decrease of 1.5 percentage points, while the amount of national debt reached 44.1% of GDP, as opposed to 42% in 2021, an annual increase of 2.1 percentage points. The debt level is thus the highest since the creation of the Czech Republic. In fact, Helena Houžvičková, director of the CZSO’s Department of Government and Financial Accounts, said that the finances of government institutions for the year 2022 had improved by CZK 63.1 billion and that the level of indebtedness had increased more than the economic result achieved. For 2023, on the other hand, a deficit in government finances of 4.2% of GDP and an increase in debt to 45.8% of GDP is expected.
The table shows the deficit and debt of government institutions in the Czech Republic from 2019 to 2022
| Units | year | ||||
| 2019 | 2020 | 2021 | 2022 | ||
| Financial Balance of the Public Secor | millions of CZK | 16.709 | -329.216 | -310.628 | -247.489 |
| Consolidated gross debt of the general government sector | millions of CZK | 1.740.263 | 2.149.822 | 2.566.731 | 2.997.083 |
| General government sector balance as % of GDP | % | 0.3 | -5.8 | -5.1 | -3.6 |
| Consolidated gross debt of the general government sector as % of GDP | % | 30.0 | 37.7 | 42.0 | 44. |
(Source: czso.cz)
[to read the entire table using a smartphone turn on the “Desktop Site” mode]Total income increased by 6.9% year-on-year in 2022, with income from social security contributions and production taxes also growing the most. As for total expenditure in the sector, it increased by 5.4% in 2022, with the largest increase occurring in social benefits paid, gross investment expenditure and interest paid, while subsidies decreased. Returning to the national debt, according to the Supreme Audit Office, the growth rate was the third highest in Europe in 2022 and state budget expenditures increased by 705 billion crowns over the past five years in contrast to revenues, which increased by only 351 billion. The data show that in 2016, revenue covered 102% of total expenditure, while five years later, in 2021, it covered only 89%, and as a result, as stated in the annual report, the Czech Republic remains one of the fastest indebted countries in the European Union, thus threatening the stability of public finances.
What could be a possible solution
One possible solution to the problem lies in the subsidy system where considerable cost savings can be found. President Kala reveals that the use of subsidies far exceeds their potential benefits and that the system by which hundreds of billions of crowns are distributed has become unmanageable. In the annual report, it is emphasised that the operation of this system involves many people and a lot of money and that the state should probably review the results of subsidy policies to check that they actually meet the promised objectives.
Source: https://www.ceskenoviny.cz/; https://www.czso.cz/
Graphic source: https://storyset.com/
Source of images: https://pixabay.com
