Czech parliament approves bill to introduce 55% of GDP debt brake

Czech parliament approves bill to introduce 55% of GDP debt brake
Czech Chamber of Deputies.
By bne IntelliNews October 20, 2016

The lower house of the Czech parliaments approved a bill to introduce a debt brake mechanism as it seeks to stem future excess borrowing.

The debt ceiling would trigger automatic stabilisers should state debt pass 55% of GDP, Radio Praha reported on October 19. The bill says that once this level is reached, the government will have to submit a balanced or surplus budget.

The approval of the bill comes after lawmakers rejected an earlier proposal to amend the constitution to include the measure. Constitutional changes require three-fifths of members of the lower and upper houses of parliament to approve. The centre-left government, in power since January 2014 and led by the Social Democrats (CSSD), controls 111 votes in the 200-seat lower house.

The debt brake bill must be approved by the upper house of the parliament, the Senate, and be signed by the president to become law.

Czech public debt stood at 40.3% of GDP in 2015, less than half the EU average and well below the EU’s limit of 60%. Latest data from the statistics office showed the debt/GDP ratio fell to 39.76% in the second quarter of 2016 from 41.16% a year ago.

Czechia has not faced any financing problems and its bonds carrying some of the lowest yields in Europe. The Central European country is even challenging Switzerland for the world’s lowest yields, as speculative capital pours into local currency debt in anticipation of a boost for the koruna next summer, when the Czech National Bank is likely to remove a cap on the currency.