New Czech government plans cuts after budget deficit hits record

  • Budget gap in 2021 reaches record 420 bln crowns
  • Spending in 2022 should drop by 80 bln crowns from plan
  • New budget draft to be ready by Jan. 26, spokesman says
  • Financing needs in 2022 depend on budget rewrite- finmin

PRAGUE, Jan 6 (Reuters) - The Czech state budget deficit swelled to a record in 2021, Finance Minister Zbynek Stanjura said on Thursday, strengthening the new centre-right government's case for rapid spending cuts to get public finances back on a stabler path.

The 2021 deficitof 419.7 billion crowns ($19.3 billion) adds to a fast-rising debt load that the new five-party government, appointed in mid-December, has pledged to tackle.

It aims to cut the fiscal deficit to below 3% of gross domestic product, from above 7%, during its four-year term.

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The 2021 budget deficit was lower than planned but surpassed the previous record of 367.4 billion crowns posted in 2020 - which itself was around double the deficit posted during the 2008-09 global financial crisis. read more

The budget has faced continued strain from the COVID-19 pandemic, but the previous administration has been criticised by political opponents and many economists for pension and public wage hikes and a record income tax cut that they say hurt public finances and betrayed a tradition of fiscal prudence.

The state's debt load, forecast to hit 43% of GDP in 2021, is still well below most European Union peers, but the rate of growth of state debt is forecast in the coming years to be one of the fastest in the bloc - seen surpassing 50% in 2024.

The new government has sought to rework the 2022 budget draft planned by its predecessor, which proposed a deficit of 377 billion crowns, to cut 80 billion crowns in spending. read more

"We have no choice but to manage with resources available, or which we can repay realistically," Stanjura said.

He declined to give further detail. A spokesman said that the new budget draft should be ready by Jan. 26. The state has started this year on a provisional budget, based on last year's framework which limits new spending.

** For an interactive graphic:

Reuters Graphics

Growing debt and rising central bank interest rates have helped push up bond yields, with the benchmark 10-year bond yield climbing on Thursday to 3.113%, the highest since mid-2012.

The finance ministry's annual funding strategy, also released on Thursday, did not include a total financing need forecast yet.

Financing needs in 2021 reached 690.4 billion crowns, or around 11% of GDP.

The 2022 strategy counts on gross issuance of crown-denominated government bonds on domestic markets of at least 350-400 billion crowns this year.

($1 = 21.7560 Czech crowns)

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Reporting by Robert Muller and Jason Hovet Editing by David Goodman, Emelia Sithole-Matarise, Alexandra Hudson

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