Moody’s raises Czech credit rating for first time in 17 years

Illustrative photo: Mediamodifier / Pixabay

Moody’s has raised the Czech Republic’s credit rating by one level. It cited the country’s strong budget performance and low debt as the main reasons for its first upgrade since 2002.

Illustrative photo: Mediamodifier / Pixabay
The agency raised the Czech long-term foreign debt rating from A1 to Aa3, which is the fourth highest investment grade under its system.

Earlier this year Moody’s Investors Service amended the outlook for the Czech Republic from stable to positive, a move seen as foreshadowing the rating upgrade announced on Sunday.

It has now returned the country’s outlook to stable, which makes it unlikely there will be another rating change in the foreseeable future.

Moody’s believes that the Czech government’s debt will continue to fall this year and in 2020, despite the worsening outlook for growth.

At the end of next year debt should stand at 30.8 percent of gross domestic product. It should then fall to below 30 percent of GDP by 2023, the agency said.

Moody’s also said that the Czech government had made a degree of progress in structural reforms, such as in the labour market and the education system. The agency added that another positive indicator in assessing the state’s creditworthiness would be the successful introduction of reforms aimed at ensuring the long-term fiscal sustainability of the pension and healthcare systems.

Czech Fund analyst Lukáš Kovanda told Czech Television that the Czech Republic was now doing best of all ex-Eastern Bloc states, having passed out Estonia.

In a tweet Prime Minister Andrej Babiš described the upgrade as a great success for the Czech economy.

Finance Minister Alena Schillerová, an appointee of the PM’s ANO party, said that Moody’s move (which puts the Czech Republic on par with countries such as Belgium and Taiwan) would save the country hundreds of millions of crowns on the financial markets.

The minister said the higher the rating, the more a country was considered a reliable debtor and could borrow on more favourable terms. This means the Czech Republic can save a great deal on financing the state debt, she said.

The spokesperson of the Czech Chamber of Commerce, Miroslav Diro, said the Moody’s report confirmed the logic of focusing on investment incentives with higher added value.

Under an amendment in place since last month, the government must approve all investment incentives, not just major strategic projects. This will lead to incentives focusing on projects that have greater added value or create more qualified jobs.