Page 64 - CE Outlook Regions 2022

consumption will slow in 2022, due to the fade-out of the
extraordinary spending in healthcare and on remuneration.

The draft state budget of Czechia for 2022 foresees a deficit of
CZK376.6bn (at 5.8% of GDP). The balance is based on an
expenditure framework compatible with a structural deficit of 5.6% of
GDP. In the following years, the pace of consolidation is set at a
minimum of half a percentage point per year and thus the ministry
expects that, with the current public finance settings, the public
finances could be around 3.5% of GDP in 2024 and the debt burden
could reach 51.3% of GDP.

According to KB, the national budget should reach a deficit of
CZK400bn in 2021. KB analysts stressed that the former cabinet
was planning fiscal consolidation over a long period of seven years,
but in an international comparison, Czech COVID-specific fiscal
stimulus was not among the largest. The representatives of the new
government coalition already confirmed they intend to move public
finances back to long-term sustainability as one of their new
cabinet’s priorities.

The new government also decided to work with a provisional budget
for 2022, until March 2022 when they should finish revising it. KB
analysts think this should not be a major problem for the economy,
as municipalities are running record surpluses. The analysts see the
deficit widening to 6.3% of GDP in 2021, showing signs of
consolidation in 2022. According to them, government debt will likely
increase further to 43.4% of GDP in 2023, from 41.8% of GDP
expected in 2021.

According to the EC, the Czech government deficit is set to decline
to 4.3% of GDP in 2022. The COVID-19 support measures started
to be withdrawn in 2H21 and are not expected to impact public
finances in 2022 anymore, but some permanent measures taken
during the pandemic (e.g. reduction in personal income taxes) will
continue to have an impact on budget revenues.

The composition of expenditures is projected to shift towards
investments, supported by the RFF and other EU funds. Public
fixed capital formation is set to surpass 5% of GDP for the first time
in the last 10 years. The public debt-to-GDP ratio in EC outlook is
forecast to rise to 44.3% in 2022 and 46.3% in 2023, driven by the
negative headline balance.

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