October 19, 2016 / 12:01 PM / a year ago

UPDATE 1-Czech house approves debt brake but rejects putting it in constitution

(Releads with bill passing)

PRAGUE, Oct 19 (Reuters) - The Czech lower house approved a bill on Wednesday setting limits on state debt levels to keep future borrowing under control after earlier rejecting amending the constitution to include the measure.

The bill will bring Czech law into line with the European Union’s “fiscal compact”, introduced in the wake of the euro zone debt crisis. However, being outside the euro zone, the Czechs face no penalties for potential breaches of the compact.

The Czech Republic government has proposed that future administrations be required to enact budget cuts when the national debt passes 55 percent of gross domestic product.

The country’s debt load is expected to dip to 39.8 percent of GDP this year from a peak of 44.9 percent in 2013.

The rejection of a constitutional amendment means the law will be easier to change in the future. Constitutional changes require three-fifths of members of the lower and upper houses of parliament to approve.

The bill says that once the 55 percent level is reached, the following budget and budget outlook must be proposed with a view to reaching “long-term sustainable public finances”.

The Czech Republic has not faced any financing problems and its bonds have some of the lowest yields in Europe, with yields on paper up to six years maturity in negative territory.

Helped by an economy firmly growing, the centre-left government is on course to balance the central state budget this year for the first time in two decades and Finance Minister Andrej Babis has aimed to stabilise nominal debt levels.

The government has a plan to run a 60 billion crown deficit in 2017 despite being set for a balanced result this year. Analysts say that is achievable partly because of a fall in investments amid the slow start to a new EU funding period.

The bill must be approved by the upper house of parliament and be signed by the president to become law. (Reporting by Robert Muller; Editing by Jason Hovet)

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