New Czech government plans cuts after record budget deficit

PRAGUE, Jan.6 (Reuters) – The Czech state’s budget deficit hit a record high in 2021, Finance Minister Zbynek Stanjura said on Thursday, bolstering the new center-right government’s arguments for rapid spending cuts to put public finances back on a more stable path.

The 2021 deficit of 419.7 billion crowns ($ 19.3 billion) comes on top of rapidly growing debt that the new five-party government, appointed in mid-December, has pledged to face. .

He aims to reduce the budget deficit to less than 3% of gross domestic product, from more than 7%, during his four-year term.

The budget deficit for 2021 was lower than forecast but surpassed the previous high of 367.4 billion kroner recorded in 2020 – which was itself about double the deficit posted during the global financial crisis of 2008-09. Read more

The budget has faced continued pressure from the COVID-19 pandemic, but the previous administration has been criticized by political opponents and many economists for increases in public pensions and wages and a record cut in taxes on the income which, according to them, has damaged public finances and betrayed a tradition of taxation. caution.

The government debt burden, which is expected to reach 43% of GDP in 2021, is still well below most peers in the European Union, but the growth rate of government debt is expected to be l one of the fastest on the block for years to come. 50% in 2024.

The new government has sought to rework its predecessor’s 2022 draft budget, which proposed a deficit of 377 billion crowns, to cut 80 billion crowns in spending. Read more

“We have no choice but to manage with the resources that are available, or that we can realistically reimburse,” Stanjura said.

He declined to give more details. A spokesperson said the new draft budget should be ready by January 26. The state started this year with an interim budget, based on last year’s framework that limits new spending.

** For an interactive graphic: https://tmsnrt.rs/3sZ0Geh

Rising debt and rising central bank interest rates helped push up bond yields, with the benchmark 10-year bond yield climbing Thursday to 3.113%, the highest since mid-2012.

The finance ministry’s annual funding strategy, also released on Thursday, did not yet include a forecast of total funding needs.

Financing needs in 2021 reached SEK 690.4 billion, or around 11% of GDP.

The 2022 strategy relies on the gross issuance of crown-denominated government bonds in domestic markets of at least SEK 350-400 billion this year.

($ 1 = 21,7560 Czech crowns)

Reporting by Robert Muller and Jason Hovet Editing by David Goodman, Emelia Sithole-Matarise, Alexandra Hudson

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