Research (Conseq)
Markets  |  April 19, 2013 14:17:32

Czech public debt in the European context

The development of the public debt of the Czech Republic can be interpreted in very different ways and with different signs assessment. Looking to increase its optical, published on-line on the information servers, a man can Collect horror when he is unable in a second register at all increase the amounts in the order of millions. This interpretation, however, is very "popular", ignoring the extra elementary comparison of increase in debt in other countries.

Too flattering rather positive even second glance, pointing to the fact that even 15 years ago, the volume of Czech public debt, approximately one-tenth. Third grim news is that the debt is paying off for us - the principal is still growing, "only" be paid interest.

And we have the favorable reports. Those interests are in the Czech case, one of the lowest in Europe, and the cost of financing our debt in comparison to the rest of Europe modest. This leads to the fact that debt service in our case even neujídá excessive amount of expenditure and so there is no paralysis of the functioning of public services due to the shortage of funds. Low cost of financing public debt are also the manifestation of low-risk investment community in relation to the Czech economy and its development perceives.

And then of course there is always "shop window" of the public debt of the Czech Republic - its rate relative to GDP stands at 45%, twice the EU average and in the case of the largest EU fiscal sinner even almost fourfold. On the other hand, it is true that the Estonian state is able to work with a cumulative debt of 8% of GDP and 15% of Luxembourg or that the Swedish prove this level for about 15 years reduced from over 70% to less than 40%.

Although the development of public debt in the Czech case is not an acute problem, its dynamics are alarming and worth considering to deal with the suspension, which not only causes future economic recovery. Structural changes, especially on the expenditure side and its more useful spending is way more rational procedure.

Petr Zahradnik,

Chief Economist

Conseq Investment Management, Inc.,

member of the National Economic Council (NERV

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