The government approved a draft budget for 2010 with a deficit of 163 billion crowns that amounts to around 5.2 percent of GDP. The original budget deficit was expected to be much higher until MPs approved a package of austerity measures in Parliament last week (which was approved by all parliamentary parties with the exception of the communists), raising some taxes and cutting state employees' pay. The draft budget must be submitted to Parliament for final approval due in December.
Prime Minister Jan Fischer earlier linked his government's future to the success of the deficit-cutting package. The vote gave wide political backing to the interim cabinet, which is expected to lead the country until general elections in mid-2010, after the Constitutional Court struck down plans to hold an early poll this autumn.
Analysis and forecast: decreasing risk
Most political risks in the Czech Republic can be derived from the instability of the government and from the incalculability of the parties’ behaviour. Though the lengthy debate about the early elections harmed the country’s reputation, the result seems to play out the most favourable scenario: the government’s position can be more stable in the next 7 months than any time in the last few years. Moreover, since the PM’s blackmailing potential is high, the political climate appears suitable for submitting the strict budget. Disciplined fiscal policy is inevitable, since the deficit is getting critical, and according to the freshest Finance Ministry forecast, the economy will not start expanding in 2010, but is set to shrink by 0.5 percent (few analysts predict a decent acceleration, but this time the official prognosis seems more realistic).
Macroeconomic figures in the Czech Republic
Source: Statistical Office of Slovakia