Czech Finance Minister Sees `Systemic Changes' to Meet Budget Deficit Goal

The Czech government will take savings measures this year and in 2011 to ensure that it meets its budget-deficit targets, Finance Minister Miroslav Kalousek said.

Without any cuts, the budget gap may reach as much as 6.6 percent of gross domestic product next year, compared with the target of 4.6 percent of GDP in 2011 and 5.3 percent for this year, he said.

“Understandably it is absolutely out of the question that the government would allow this to happen,” Kalousek told reporters today in Prague. He pledged “major systemic changes” for the budget in 2012.

The three-party government, appointed on July 13, has committed to reduce the public-finance deficit and wants to bring the shortfall to within the European Union limit of 3 percent of GDP by 2013. Without action now, the budget deficit may also reach 5.8 percent of GDP this year, Kalousek said.

The budget gap widened to 5.9 percent of GDP last year when the global economic crisis cut demand for Czech exports, including cars made by the local units of Volkswagen AG and Hyundai Motor Co., pushing the country to the worst recession since the demise of communism two decades ago.

Record Majority

The new government has 118 seats in the 200-member lower house of parliament, giving it the strongest majority since the country became an independent state in 1993.

Moody’s Investors Service said it may increase the Czech credit rating from the current A1 if the government delivers on its promise to overhaul the public finances and curb the deficit.

The Cabinet will debate the savings measures tomorrow, Kalousek said, adding that he wants to propose freezing 2.5 percent of government operating costs for this year.

The Finance Ministry forecasts the economy will grow 1.6 percent this year and 2.3 percent in 2011, after a 4.1 percent contraction in 2009. The European Commission, the European Union’s executive arm, estimates the euro area’s economy will grow 0.9 percent this year and 1.5 percent in 2011.

The Czech Republic plans to sell a record 280 billion koruna ($14.3 billion) of bonds this year, including securities denominated in foreign currencies, and says debt sales will increase to 312.9 billion koruna by 2012.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net;

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