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Czech budget deficit soars to record $17.2 billion in 2020

PRAGUE (Reuters) - The Czech central state budget ended 2020 with a record 367.4 billion crown ($17.20 billion) deficit, almost twice the gap seen in the global financial crisis a decade ago, as the coronavirus pandemic hammered revenues and stoked spending.

But it was below a forecast gap of 500 billion crowns envisaged by lawmakers in a mid-year budget revision as the state stepped in to help businesses and workers after the pandemic wrecked original plans for a 40 billion crown deficit.

Czech markets expect a second year of huge state borrowing as the government plans a 2021 budget delivering a record tax cut while maintaining past spending promises amid the pandemic.

Budget watchers, many of whom have criticised fiscal plans, see the 2021 budget ending in a similar shortfall to 2020.

The central state budget is the main part of overall public finances, which also include local and regional administrations, the health insurance system and various agencies.

The finance ministry had expected the overall public sector gap at 6.4% of gross domestic product in 2020.

** For an interactive graphic: tmsnrt.rs/2Lo9BSN

The government’s 2021 budget counts on 3.9% economic growth - faster than forecasts from the central bank or other institutions - as it seeks to cut the overall public sector deficit to 4.9% of GDP.

However, an income tax cut coming into effect this year is expected to cost public finances around 100 billion crowns, or 1.7% of GDP, further driving up the deficit, currently seen at 320 billion crowns.

The yield on a 10-year benchmark hit its highest level since May at 1.36% this week as supply worries weighed on the market.

Czech bonds have also underperformed Hungarian and Polish peers as investors see the Czech central bank tightening interest rates before others. Polish and Hungarian central banks have also supported their markets with bond purchases.

($1 = 21.3660 Czech crowns)

Reporting by Robert Muller, editing by Jason Hovet and Gareth Jones

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