Statement of the Czech Fiscal Council Concerning the Current Situation Related to the New Coronavirus Type Pandemic

Statement of the Czech Fiscal Council Concerning the Current Situation Related to the New Coronavirus Type Pandemic

The Czech Fiscal Council is keeping a close eye on the constantly changing situation caused by the COVID-19 pandemic and on the measures being adopted in relation to it, not only domestically, but also abroad.  We then evaluate that information, in particular with a view to the possible impact of those measures on the Czech economy and public finance as a whole.

At present, it is not possible to calculate the impact with sufficient precision, but it is already evident that extraordinary fiscal measures will be required to overcome the extraordinary healthcare and economic situation.  These will require a change of the 2020 state budget act.  The Council is of the opinion that the fiscal policy response must be rapid and sufficiently massive.  An advantage of the Czech Republic in this regard is that, unlike many other EU countries, it is entering the coming economic crisis with a relatively low level of public debt and hence has relatively a great deal of room for fiscal stimulus.  Also, the institutional set-up of fiscal policy specified in Act No. 23/2017 Coll., on budgetary responsibility rules, allows the limit values of public budget deficits to be exceeded in such specific situations.

In this context, the CFC welcomes that the government of the Czech Republic has already announced the general framework of direct and indirect support to entrepreneurs, companies, and individuals.  Given that, even with the expected significant increase of public budget deficit, the government will not have unlimited funds, all measures must be targeted into areas where they will either prevent significant social problems related to, for example, bankruptcies of companies or sole proprietors or to lay-offs, or where they will bring a significant positive stimulus for the country’s economy with a high multiplication effect.

Good news for the Czech economy is the scope of the measures announced by Germany for its economy.  The largest trading partner of the Czech Republic is planning to provide support loans of up to EUR 550 bn through its state development bank.  This step will, in turn, help many Czech companies for which Germany is a key export partner.  The German government may provide support in this extent to its economy without greater difficulties, among other things because, in recent years, it has been practicing a procyclical fiscal policy and created budget surplus.

The Czech Fiscal Council will continue to assess the situation and the impact of the measures taken in relation to the pandemic, on public finance and on the economy as a whole, and will inform industry professionals as well as the general public of its findings.  Naturally, in doing so, it will take account the extraordinary nature of the situation and of the exceptional nature of the expenses that must help citizens of the Czech Republic cope, not only with serious medical risks but, last but not least, with the adverse effects of the pandemic on their lives.  If necessary, the Office of the Czech Fiscal Council is also prepared to offer its expertise and analytical capacity for searching for and evaluating other options for supporting the Czech economy and helping it overcome this difficult situation.