Sept. 9 (Bloomberg) -- The Czech sovereign debt rating isn’t threatened by the nation’s constitutional crisis that may leave it with only a provisional budget at year-end, Moody’s Investors Service said.

“The likely postponement of important fiscal decisions is certainly bad news,” said Dietmar Hornung, Moody’s senior analyst for sovereign ratings, in a phone interview in Prague yesterday. “However, if there’s the political will, the budget may be revised by the new government after the elections.”

Lawmakers, scrambling to reschedule elections after a court blocked plans for a ballot on Oct. 9-10, are debating changes in the constitution to allow for a vote in November. The delay may result in a temporary budget that fails to include spending cuts necessitated by the recession, political leaders have warned.

The country has been rated A1 by Moody’s since November 2002, five notches below the top Aaa rating and level with Estonia and Slovakia.

The Czech Republic, Slovakia and Poland are the “more stable” economies in Central Europe and the Czechs are in a better position than their peers in the region, Moody’s said in a report last week. Its creditworthiness remains “quite favorable,” even amid the global economic crisis, Hornung said.

Stabilization Needed

“We’re monitoring the situation closely, and it is crucial that the authorities take measures that are adequate to stabilize the country’s debt metrics” in 2010, he said.

Finance Minister Eduard Janota plans to propose a 2010 budget with a record deficit of 231 billion koruna ($13 billion), or about 7 percent of gross domestic product, after the main political parties rejected a narrower deficit of about 160 billion koruna.

Janota has said the budget deficit will balloon and force the country to sell more debt unless it cuts spending and raises taxes. Party leaders have said they want to write their own spending programs after the elections.

The economy moved out of recession in the second quarter, growing 0.1 percent, a report yesterday showed. It will probably continue growing in the third quarter, the central bank said.

The severity of the global recession means the government will probably need to run a wider budget deficit, “but at the same time, they need to cut back going forward and that’s the challenge the Czech Republic is facing,” Hornung said.

Any new government urgently needs to overhaul the pension and health-care systems to help create a better structure for budgets, he said.

“It’s really important and we will monitor” those programs “closely to see if there is be a U-turn,” Hornung said. “We would act should the lack of reforms weaken the debt metrics to a level incompatible with the current A1 rating.”

To contact the reporters on this story: Lenka Ponikelska in Prague lponikelska1@bloomberg.net

Last Updated: September 8, 2009 18:00 EDT