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Healthcare

UPDATE 1-Czech government loosens record deficit to fight coronavirus

(Adds details, minister’s comment)

PRAGUE, April 20 (Reuters) - The Czech government on Monday approved widening the 2020 central state budget deficit target by a further 50% to a record 300 billion crowns ($12 billion) as it battles the coronavirus outbreak.

The deficit target, which still needs parliamentary approval, is set to rise from an already elevated 200 billion crowns, itself an all-time high after being widened in March from the government’s original target of 40 billion crowns.

The newly planned deficit target this year would be more than total deficit spending seen between 2012-2019, when the combined balance of the central state budget in those years showed a shortfall of 292.8 billion crowns.

The Czech Republic has been running overall fiscal surpluses since 2016 due to solid growth and record low unemployment. Government debt has been among the lowest in the European Union at around 30% of gross domestic product going into the crisis.

“We have to use the fiscal space that we have,” Finance Minister Alena Schillerova said.

She said the government could look at possible savings later in the central state budget - which is the biggest chunk of overall public finances - but smaller cuts now would not solve the problem.

On Sunday, Schillerova had said the government expected an even deeper drop in income and higher expenditure related to the crisis than estimates last month. The state also wanted to maintain public investment to support the economy.

The virus outbreak has put most shops and daily life on a virtual lockdown for the past month and idled some major factories, setting the country on course for at least a 5% contraction in 2020, according to official estimates.

The state has ramped up borrowing in the past weeks to record levels amid the outbreak.

Parliament has passed legislation giving the Czech National Bank a freer hand to buy state, corporate and mortgage bonds and other assets from a wider range of counterparties, if needed.

The state’s budget council estimated on Monday that a 5.6% decline in the economy, as expected by the Finance Ministry, would lead to an overall fiscal gap of 4.3% of GDP, while a 6.5% drop this year as forecast by the International Monetary Fund would cause a fiscal gap of 4.8%.

** For an interactive graphic: reut.rs/3exsJHO

Reporting by Jason Hovet and Robert Muller; Editing by Toby Chopra and Giles Elgood

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