June 23, 2020 / 2:41 PM / 2 months ago

Czech parliament gives initial nod to raising 2020 budget gap to 9% of GDP

PRAGUE (Reuters) - The lower house of the Czech parliament approved a rise in the 2020 central state budget deficit to a record 500 billion crowns ($21.21 billion) in the first out of three readings on Tuesday.

The Central European government is seeking to raise enough funds to shore up an economy hard hit by the coronavirus pandemic. It had earlier increased the deficit plan to 200 billion crowns and later to 300 billion, from the initially planned 40 billion crowns.

The latest proposed figure would equate to around 9% of the the expected 2020 gross domestic product. That is before the potential additional impact of local budgets, the health system and other parts of the public sector are factored in.

Finance Minster Alena Schillerova told parliament the 500 million may be close to the overall public sector result.

The Czech National Bank sees the domestic economy contracting by 8% this year.

The budget crunch comes from both a slide in tax receipts and higher spending on healthcare, subsidies to self-employed and businesses to preserve jobs against the pandemic, and foregoing social insurance payments by smaller firms.

The Prague government has pledged to shore up the economy with around 1.2 trillion crowns in total, most of that coming in state-backed commercial loans and guarantees.

Businesses have complained that aid has been slow to arrive and hard to qualify for. Central bank data showed that in state-backed loans, only 7.4 billion crowns have been distributed so far.

The Czech Fiscal Council, an independent body elected by parliament, said the rise in the deficit to 500 billion was “premature, excessive and groundless”, as the government did not specify properly where the extra spending would go.

However, the Czech Republic appears in a solid position to borrow after driving government debt down in the past few years to 30.8% of GDP in 2019 versus an EU average of 79.3%.

Reporting by Robert Muller and Jan Lopatka; Editing by Mark Heinrich

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