Czech Lawmakers Back Fiscal Plan With Smallest Gap Since 2007

The Czech parliament approved the 2016 state budget with the smallest deficit in eight years as the country takes advantages of accelerating economic growth.

Lawmakers backed a fiscal plan reducing the public-sector deficit to 1.2 percent of economic output from an expected 1.9 percent this year, according to the result of a vote in Prague on Wednesday. The shortfall in the central budget, the biggest part of public finances, is set at 70 billion koruna ($2.8 billion), compared with the 100 billion-koruna target for this year. Finance Minister Andrej Babis estimates the 2015 budget gap will be about 30 billion koruna less than the plan.

“The Czech Republic is doing well,” Babis said during the budget debate on Wednesday. “We have one of the smallest deficits and debts in Europe. It’s certainly the activities of this government that started economic growth.”

The country of 10.5 million is benefiting from one of the highest economic growth rates in the European Union after Social Democrat Prime Minister Bohuslav Sobotka’s government ended years of austerity. The central bank’s monetary policy of near-zero rates and a cap on currency gains is also adding stimulus that’s helped cut the state’s short-term borrowing costs.

The yield on Czech two-year government bonds has been below zero since early September as central bank interventions against koruna appreciation have channeled more liquidity into the domestic market. The two-year rate was at minus 0.28 percent on Wednesday, while the koruna held stable at 27.024 against the euro. The currency has gained 2.4 percent against the euro this year, outperforming the Hungarian forint and the Polish zloty.

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