Fitch affirms Czech Republic’s rating at A+, outlook stable

By bne IntelliNews May 16, 2014

Fitch Ratings has affirmed the Czech Republic’s long-term foreign and local currency Issuer Default Ratings (IDRs) at A+ and AA-, respectively with a stable outlook, the ratings agency said in a statement. The issue ratings on the Czech Republic's senior unsecured foreign and local currency bonds are also affirmed at A+' and AA-, respectively. The Country Ceiling is kept AA+ and the short-term foreign currency IDR at F1.

The country’s ratings are underpinned by its strong macroeconomic policy framework, low public and private sector indebtedness and a fairly flexible labour market that has helped to prevent rises in unemployment through the recession, Fitch said. The country’s fiscal deficit and gross debt, at 1.5% of GDP and at 46% of GDP at end-2013, are both below the respective A medians of 2.2% and 52.3%. Private sector debt stands at 72% of GDP, well below the EU’s average of 157%.

Fitch expects the fiscal stance of the new government to lead to a slightly wider fiscal deficit but it should stay under EU’s ceiling of 3% of economic outlook in both 2014 and 2015.  

Improved eurozone outlook, accommodative monetary policy and a renewed public investment drive will help the Czech economy grow 1.9% in 2014, after a two-year recession. Next year, growth should gain speed to 2.5%, according to the ratings agency.

The country’s ratings are also supported by its stable banking sector and the fact that the Czech Republic is a net external creditor.

Fitch, however, warned that due to the fact that the Czech economy has a high degree of openness, it is exposed to external shocks and the volatility of business cycles of its main trading partners.

Fitch would consider cutting the ratings in case of a severe negative growth shock that damages the country's economic and fiscal stability or fiscal slippage leading to a material rise in the public debt ratio. Conversely, higher economic growth could trigger a rating upgrade.

Related Articles

V4 leaders positive after dinner with European Commission president

The head of the European Commission Jean-Claude Juncker held talks with leaders of the Visegrad Group at a nearly three-hour dinner on October 19.  The dinner on the eve of the EU summit was ... more

VW attempts to placate Czech passions over Skoda production move to Germany

Volkswagen on October 11 attempted to placate Czechs angered that their 'family silver' carmaker Skoda Auto ... more

Controversial Czech company threatens Kyrgyzstan with arbitration for loss of hydro contracts

Czech company Liglass Trading has threatened Kyrgyzstan with international arbitration for the annulling of contracts to build and run 12 hydroelectric power plants, Reuters ... more

Dismiss