OECD report says poor administration, regulation are short changing Czechs of higher growth

An OECD report unveiled on Tuesday gives a stark message that many aspects of the Czech economy are performing poorly and that economic growth could be significantly higher if problems of poor administration, regulation and competition were addressed.

Bohuslav Sobotka, Angel Gurría, photo: CTK

Czech Prime Minister Bohuslav Sobotka on Tuesday highlighted the importance of the Organisation for Economic Cooperation and Development’s (OECD) latest report on the Czech economy, its problems, and possible solutions.

OECD Secretary General Angel Gurría was on hand in Prague to present the findings and discuss them with the prime minister, ministers, and members of parliament.

The so-called club of rich countries, stuck by its predictions of November last year that Czech economic growth in 2014 will come in at 1.1 percent and climb to 2.3 percent in 2015. It advised that the Czech National Bank maintain its weak crown policy launched in November last year but cautioned that the deflation threat should be cured within 18 months and the weak crown policy wound up by then or even earlier.

Those predictions are a bit below the 2.2 percent and 2.8 percent growth that the Czech National Bank is forecasting. The OECD has a reputation for pessimism on the prediction front.

But the main message of the report is probably that Czechs are being short changed on economic growth by poor domestic administration and regulation.

Photo: Štěpánka Budková

The OECD says that Czech economic growth could be significantly bolstered if the country addressed these problems. In fact, it argues that Czech growth could be running at around 2.75 percent a year until 2030 if it were not for a series of brakes put on business by government red tape, poor regulation and lacklustre competition.

Part of the spotlight is put on the past performance of the Czech competition office and the fact that it has not taken significant steps to deal with cartel abuse on the domestic market. A question is raised whether the office has sufficient resources to do the job it should be doing.

Regulation of network sectors, such as electricity production and distribution, is also criticized and the fact that vertical links, for example within state power group ČEZ, curb competition and result in high electricity prices for consumers.

The poor management of other state companies also comes in for attack with the recommendation that these be sold where possible.

The report also urges the Czech Republic to deal with pension reform, supply more pre-school childcare so that mothers can get back to work, and create better links between the education system and employers so that high school and university leavers have skills that can be used or training possibilities.

Photo: Griszka Niewiadomski / Stock.XCHNG

Prime Minister Sobotka welcomed most of the recommendations and said they are in line with his coalition’s policy. But he rejected the OECD’s suggestion that fees be phased in for university students saying that this would particularly hit those from poorer families. On pension reform, he also said planned raises in the retirement age would not be sped up but a new working group will try to plot ways of ensuring Czechs are better covered financially in their old age.