Record state deficit sparks fears that Czech finances are spiralling out of control
Figures just out have confirmed that the Czech state is heading for a record-breaking and massive public deficit this year. Higher spending and a dramatic drop off in revenue from taxes could see a ten-fold jump in the deficit by the end of this year compared with last. Leading analysts are now warning that the debt and deficit powered public finances are heading off the rails.
The figure that has sent a shudder through the Czech financial world is the 170 billion, or around 10 billion US dollar, total for the accumulated state deficit so far this year until the end of November. Basically, the deficit is the difference between government revenues and spending.
The 11-month figure is already nearly nine times the total deficit for 2008 and more than three times what the government planned for at the beginning of the year.
Pavel Mertlík is a former Czech finance minister and top economist at Raifeissenbank’s Czech unit. He says there was a sharp monthly deepening of the deficit but the year end figure could be even worse.
“Definitely there was a big drop between November and October. This happens every year that the last two months are highest as regards expenditures because there are annual bills and things like that. But I am afraid that the December expenditure level can be quite high, which happens regularly. So it is very difficult to say what the final deficit will be. But if it is 220 billion Czech crowns it should not be a surprise.”
The record public deficit for this year will automatically translate into a bigger overall national debt. Economists see this shooting up from 30 percent of Gross Domestic Product at the end of 2008 to 40 percent by the end of next year. While this is not an extremely high rate compared to some other European countries, there is rising concern that the Czech Republic seems to be sleep walking into a snowballing debt situation. More debt starts to mean more borrowing — usually at worse rates —leading to more debt and more borrowing. Once you get on this vicious debt slope it is very difficult to get off.
Pavel Mertlík has joined three other top Czech economists who have just penned a report warning of that approaching scenario based on the growing ratio between overall debt and national wealth production.
Mr Mertlík says that big changes in the way the government raises taxes should be pushed through by 2015. If not, politicians and the country could soon start to be living not just on borrowed money but also on borrowed time.
