Czech government meeting budget target

PRAGUE: The Czech government should be able to meet its full-year fiscal target without additional cuts, as lower debt costs should offset an expected drop in budget revenue, its finance minister said.

Miroslav Kalousek said on Sunday an economic slowdown expected in the second half would lead to a 12-15 billion crown ($670-$838 million) drop in budget revenue.

"I firmly believe that no (cuts will be needed)," Kalousek said in a discussion programme on commercial TV Prima. "The savings that were made on other items, mainly on debt servicing, can compensate for this."

Yields on Czech treasury bonds are among the lowest in Europe thanks to the country's low debt, strong fundamentals and the centre-right government's austerity drive.

They fell further after Standard & Poors raised the Czech Republic credit ratings last months, helping cut debt costs for the Czech government.

The government is targeting a full-year deficit of 135 billion crowns. Revenue has lagged plan due to lower tax income and subsidies from the European Union budget.

The budget sees the overall public sector deficit, including the central government budget as well as local budgets, national health insurance system and other items, at 4.6 percent of gross domestic product.

The finance ministry's latest forecast saw the gap at 4.2 percent.

The central European economy grew 0.1 percent in the second quarter from the previous three months, and by 2.2 percent year-on-year, a marked deceleration from the first quarter.

Most analysts expect growth to slow further in the export-oriented economy as demand for its goods, including Volkswagen's Skoda cars, falls in other European countries hit by sovereign debt crisis and slowing growth.

Copyright Reuters, 2011