State to raise money via bonds, give central bank freer hand

The Czech government plans to obtain finance in the wake of the coronavirus crisis through loans and the sale of bonds, the minister of finance, Alena Schillerová, said on Tuesday, adding that she had agreed on this course with Czech National Bank governor Jiří Rusnok.

Alena Schillerová, photo: ČTK/Kateřina Šulová

The minister said on Czech Television that the cabinet was acting quickly, with a view to reaching those in need as quickly as possible.

She said that Czech public finances were in excellent shape and guaranteed a strong position from which to secure loans.

Ms. Schillerová said that she had also reached agreement with CNB chief Rusnok on the need to purchase government bonds.

She told Czech Television that she did not fear an outflow of foreign capital. She said the Czech Republic was a good country in which to do business, had a developed infrastructure and was valued by companies for its rule of law and high-quality personnel.

Ms. Schillerová called on firms to keep their dividends within the Czech Republic, an appeal that was echoed by the central bank’s Jiří Rusnok.

The minister said the government was expecting the situation to calm at the end of the second quarter of this year.

She had previously said that the fact the Czech Republic had one of the lowest levels of indebtedness in the EU facilitated the issuing of bonds.

In addition, the lowest volume of repayments of previous debts in a decade is expected; last year the figure stood at CZK 290 billion, while this year it should be CZK 200 billion.

The government-approved amendment to the law on the CNB also eases restrictions on its open market transactions.

The central bank can now trade with other entities, such as insurance and pension companies or other institutional investors. Normally it can only trade with banks and credit unions. The change allows it to buy government bonds.

A spokesperson for the Czech National Bank said the move was intended to enable the widening its range of monetary policy instruments as well as the range of entities that the bank can trade with, adding that the institution had been advocating for this since 2016.

The Chamber of Deputies is set to discuss these legislative amendments during a regular session, the next of which is due to begin in the middle of next month.

Earlier this week the government raised the planned budget deficit for 2020 from CZK 40 billion to CZK 200 billion.