National Budget Council: Czech public debt to spiral out of control as early as 2034

The Czech National Budget Council has warned that the country's public finances are no longer on a sustainable path: next year's budget deficit is projected at 386 billion crowns, and the so-called debt brake — triggered when debt reaches 55% of GDP — will kick in not in 2037, as previously forecast, but already in 2034.

"Restoring sustainable development of public finances requires new, intensive consolidation efforts with clear, long-term positive effects," said Council Chairman Mojmír Hampl as he presented the annual Fiscal Sustainability Report. According to him, delaying corrective measures only raises the cost of future consolidation and unfairly shifts a disproportionate share of the burden onto younger and yet-unborn generations.

Deficit breaks records

According to the National Budget Council, which monitors compliance with fiscal responsibility rules, this year marked a reversal of a long-standing trend. Czech public finances had previously been moving toward greater sustainability, and under the rules in place at the time, their condition was expected to keep improving gradually. But the situation changed after last year's elections.

This year's budget, drafted at the start of the year by the Babiš government, envisages a deficit of 310 billion crowns — a figure the Council says violates the fiscal responsibility law and pushes the country's finances toward clear fiscal expansion.

The government has already submitted next year's draft budget: revenues are projected at 2.199 trillion crowns, expenditures at 2.585 trillion, resulting in a deficit of 386 billion crowns. The only larger deficit on record came during the pandemic year of 2021, at nearly 420 billion.

"Finances can no longer be called sustainable"

According to the Council's calculations, the structural and overall balance of the general government sector will reach −3.7% of GDP next year. "The consolidation efforts of recent years haven't just stalled — they've reversed course, and public finances can no longer be called sustainable," Hampl warned.

The law had set the maximum allowable structural deficit for this year at −1.75% of GDP, but the actual figure is expected to come in at −2.5%.

Debt could climb to 245% of GDP

Long-term sustainability indicators have also deteriorated. Last year's report projected that the debt brake — the 55% debt-to-GDP threshold — would be triggered in 2037; this year's report moves that date up to 2034.

The long-term outlook is even more alarming: while the previous report projected debt reaching 178% of GDP over a fifty-year horizon, the current report now forecasts 245% of GDP.

The cause lies not only in looser fiscal rules but also in a shifting approach to defence spending. Rising defence expenditures are adding pressure to the state budget, though the Council identifies chronic deficit spending as the main driver of the long-term imbalance.

Council member Petr Musil clarified: "Our report shouldn't be read as suggesting that the sharp rise in debt toward the end of our forecast horizon is caused by defence spending. It's rather a demonstration of how the sustainability of public budgets deteriorates when obligations stemming from the Czech Republic's membership in international organisations are ignored for years, while the country's political leadership remains unwilling to set priorities in budget spending."

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Source: novinky.cz