Czech Economy seen through eyes of OECD


The Czech economy - and especially the banking sector - is in much better shape than in previous years. Or at least so says the OECD, in a new study which has just been released. The Czech Republic is praised for economic growth and an improvement of the business environment. But the report does criticise the country for its excessively relaxed fiscal policy and a growing current account deficit, which could endanger the Czech Republic's economic stability. Lucie Krupickova has the story:

The overall outcome of the study sounds positive to economic analysts. The OECD analysis mentioned recent successes in the banking sector, such as its completed privatisation. The report also positively evaluated the case of the IPB bank which was put under forced administration a year ago in order to save it from collapse.

The opinions over the details of the OECD study vary from one expert to another. According to some analysts it reflects the true state of the Czech economy. Some of them blame the report for being too optimistic, others say it underestimates the expected economic growth in the Czech Republic. All experts are, however, united in the view that the study presents a warning against the overly generous budget policy of the Czech government. The budget deficit of the Czech Republic has been increasing constantly, something which could destabilise the country's economy. I asked economic analyst Jan Sykora from Wood & Company how serious the situation was:

"I think any OECD warning should not be taken very lightly. I think it is true that the government has been spending a lot of money, whether it's on its social policies or on its, sort of, generous bail-outs on some of the fallen banks etc. So I think OECD is quite rightly asking whether our economic supports such a generous policy and I think the government should take such a warning quite seriously."

The budget deficit has been increasing for several years now. To cut it down would therefore also be a long-term process. What measures should the government take to start improving the current situation. Economic analyst Jan Sykora again:

"I think that there are some remedies that could be implemented reasonably quickly. That is speed-up of the privatisation process and recent successes such as privatisation of Komercni banka are certainly steps in the right direction. Historically the government has proved not to be a very good manager and owner of companies. So, through privatisation not only companies will get their strategic investors or really strongly-devised management teams, but on top of that, the government would receive proceeds that could immediately be used for repayment of governmental or public debt. The second part is structural side of public finances, the right level of taxation. But, also, one should look at the spending side and the government social policies. So, I think one should look at public finances from all the angles."

Author: Lucie Krupičková
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