Czech public deficit to decline in mid-term, say rating agencies

Moody’s and Fitch have kept the sovereign ratings for Czech Republic unchanged with stable outlook. Meanwhile, the rating agencies consider that the public debt of the nation is quite low and expect it to decrease further, noted KBC Market Research. At present, the yields on short (two-year) Czech government bonds have been the second lowest globally after the Swiss yields.

Last Friday, Moody’s affirmed Czech’s sovereign rating at the ‘A1’ level with a stable outlook. It stated that the affirmation showed the nation’s fiscal resilience and restricted exposure to event risks. The rating agency anticipates that the Czech public debt ratio will fall to 36 percent of the GDP by 2020 from 41.1 percent in 2015.

Meanwhile, Fitch also affirmed its sovereign rating for the Czech Republic at ‘A+’ with a stable outlook, just before the weekend. Fitch stated that the rating confirmation reflects Czech’s solid external creditor position, strong banking system and rebounding fiscal position. 

On the other hand, GDP per capita is consistent with the peer group median but stays quite well below the ‘AA’ rating category. Furthermore, the process of standards-of-living convergence has decelerated as compared to the pre-2008 period, stated Fitch.

According to the rating agency Fitch, Czech government debt is likely to decline, thanks to a result of lower government deficits. It expects the deficit to decline to 37 percent of GDP by 2018. It also anticipates that the real GDP growth of the nation will decelerate from 4.6 percent in 2015 to 2.4 percent in 2016 as public investments lose momentum at the beginning of a new financial disbursement cycle, noted KBC Market Research.