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Fitch: Elections in the Czech Republic won't affect rating

Staff writer ▼ | August 23, 2013
The prospect of early elections in the Czech Republic has no direct impact on the sovereign's 'A+'/Stable rating, Fitch Ratings says. There is currently no reason to assume that it will result in a dramatic shift in fiscal or economic policy.
Czech Republic
Czech RepublicThe prospect of early elections in the Czech Republic has no direct impact on the sovereign's 'A+'/Stable rating, Fitch Ratings says. There is currently no reason to assume that it will result in a dramatic shift in fiscal or economic policy.


The Social Democrat party, which was not part of the outgoing government, is comfortably ahead in opinion polls. Shadow Finance Minister Jan Mladek said earlier this month that the party would retain the commitment to cutting the fiscal deficit to below 3% of GDP.

This is in line with Fitch's long-held view that the Czech authorities will consolidate the public finances to exit the EU's excessive deficit procedure and reflects a broad political consensus for consolidation, although the Social Democrats have been critical of some economic reforms and an austerity drive that has reduced public investment.

The Czech Republic's sovereign rating has been supported by a strong recent track record of consolidation in the public finances. Consolidation in 2012 and 2013 was maintained despite increasing political uncertainty after the Public Affairs Party, the junior partner in then-Prime Minister Petr Necas's centre-right coalition, split in May last year.

The fiscal deficit would have shrunk last year without the inclusion of one-off items, including compensation paid to churches and religious societies, in accordance with ESA95 methodology. These pushed the 2012 headline deficit up to 4.4% of GDP, from 3.3% a year earlier. This year's fiscal performance so far is consistent with Fitch's forecast that the deficit will stabilise slightly below 3% of GDP in 2013-2015.


 

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