Parliament approves state budget for 2003

The Lower House of Parliament on Tuesday approved the government's draft budget for 2003. Approved by a slim majority of 1vote, the proposed budget has a record deficit of close to 111 billion crowns or 3.7 billion US dollars. The opposition Civic Democrats, who voted against the budget, have slammed the governing coalition, saying they are miring the country in debt. The governing coalition counters that it is only dealing with a situation created by former governments and that it is working hard on gradually reducing the deficit in state finances. Daniela Lazarova asked economic analyst Radomir Jac how he views the approved budget.

Parliament approves state budget for 2003

State budget deficit (1994 - 2003), source: CTK

"Well, obviously the 2003 state budget deficit is set at a record level - more than 110 billion Czech crowns. Actually the budget deficit was reduced from the original proposal by the decision to reduce coverage of consolidation agencies. However, while this deficit can be considered high I think that the main issue is what developments we can expect in the coming years."

In order to sugar that bitter pill the finance ministry has unveiled two alternative plans for the reform of state finances in the coming years- a so called "radical" reform which would bring the deficit down to 3% of the GDP by 2008, when the country is expected to join the monetary union, and a more moderate version. How feasible do you find these proposals?

"As I understand, the finance ministry does not target any particular year as a projected date for the adoption of the euro. I think that these proposals for fiscal reform have two goals: the first is to be ready to adopt the euro in general, the second is to stabilize and improve public finances in the Czech Republic. As was mentioned the more radical reform would enable to reduce the country's state deficit to below 4% by 2006 when the current government's term in office ends, the moderate version would enable to reduce the deficit to below 5%. The finance ministry also submitted a scenario on the development of public finances without any reform measures. In this case the deficit would remain high - above 6, 5 % of the GDP by 2006. I would say that the "radical" fiscal reform would be welcomed by international financial markets as well as by rating agencies but in reality I can imagine that the government will agree on some compromise that will be softer than the radical scenario. Still, having said that, reducing the deficit to levels of 4% or at least below 4.5% of the GDP by 2006 would mean progress in comparison with the current situation."

That was economic analyst Radomir Jac commenting on the country's state deficit problems.