Growing Economy Moves Czechs Closer to Balanced State Budget

The Czech Republic’s fiscal surplus widened to a record in August, signaling that a growing economy, shrinking public investment and the fight against tax evasions may help the government achieve the first balanced full-year budget in two decades.

Revenue exceeded spending by 81.2 billion koruna ($3.3 billion) in the January-August period, compared with a 19.2 billion-koruna surplus a year earlier, the Finance Ministry in Prague said in a statement on Thursday. While government spending typically increases in the last months of the year, the country might end 2016 with a balanced budget, or even a surplus, compared with the planned 70 billion-koruna deficit, according to Komercni Banka AS.

The nation of 10.5 million is improving its public finances as one of the fastest-growing economies and lowest unemployment rates in Europe are boosting tax revenue. The government has also delayed some investments, including highway construction, and Finance Minister Andrej Babis’s crackdown on tax evasion is helping to increase state income as well, said Jan Vejmelek, chief economist at Komercni Banka in Prague.

“In light of today’s figures, we see a good chance that the deficit will be even lower than our estimate for 35 billion koruna,” Vejmelek said by e-mail. “The likelihood that the full-year budget will be balanced or even in surplus is definitely not small.”

Budget performance has been reducing the government’s borrowing needs, helping to compress the rate on 10-year bonds to a record-low 0.27 percent last month. The yield stood at 0.29 percent on Thursday at 2:53 p.m. in Prague, compared with 0.53 percent at the end of last year and trading 33 basis points above similar German bunds.

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