S&P affirms Czech Republic’s ratings, outlook stable

By bne IntelliNews July 28, 2014

Standard & Poor's Ratings Services has affirmed the Czech Republic’s long-term foreign and local currency sovereign ratings at AA- and AA, respectively, keeping a stable outlook. The ratings agency affirmed also the country’s short-term ratings at A-1+, S&P said in a statement.

The ratings reflect the agency’s view that the Czech economy is prudently managed as it is characterised by low levels of foreign borrowing, a deposit-funded banking sector with minimal lending in foreign currency, and an independent central bank that has kept inflation low. Yet, the ratings are constrained by the economy's weaker performance and lower GDP per capita than similarly rated peers. Additionally, the ability of the new government to deliver sustainable public finances, promote balanced economic growth and respond to economic shocks may be constrained by frictions within the three coalition partners that could hamper the effectiveness and predictability of policymaking, S&P said.

The ratings agency expects the Czech Republic’s economy to expand at an average annual rate of 2.4% in the period 2014-2017 supported by rising demand both from abroad and at home. Yet, as an open economy the country’s growth prospects are closely linked to the sustainability of economic recovery in its main trading partners.

S&P sees the general government fiscal deficit slightly narrowing to 1.4% of GDP in 2014 from 1.5% in 2013 but modest rises in capital expenses will lead to fiscal gaps averaging 2% over 2014-2017. The current account gap is forecast to average 1.7% of GDP over the next few years as the large income deficit will offset the trade surplus. Regarding the government debt, S&P expects it to reach 40.8% of economic output by 2017 from 38.2% estimated for 2014.

The stable outlook on the country’s ratings balances S&P’s expectation that the new centre-left government, in power since Jan 29, will continue to implement fiscal and structural reforms against the risks stemming from a weak outlook for economic growth and public finances and a potential reversal of public finance reforms.

An upward pressure on the ratings could come from a decline in the Czech Republic's external financing requirements. Conversely, a downward pressure on the ratings could mount if the public finances deteriorate, or if the political uncertainty re-emerges threatening the effectiveness, stability, and predictability of the policymaking institutions.

Czech Republic -Selected Indicators
  2014f 2015f 2016f 2017f
GDP per capita (US$) 19,220 20,060 20,616 21,248
Real GDP growth (%) 2,6 3,3 1,7 2
Gen govt balance/GDP (%) -1,4 -2,0 -2,3 -2,3
Net gen govt debt/GDP (%) 38,2 38,5 39,7 40,8
CPI growth (%) 0,8 2,2 2,2 2,2
Current account balance/GDP (%) -0,8 -1,3 -1,7 -2,0
Narrow net external debt/CARs (%) 2,6 2,8 3,5 4,5
Net external liabilities/CARs (%) 50,7 48,4 46,2 44,3
Source: S&P        

Related Articles

Czech CPI buys huge Central European retail portfolio

Czech real estate investor CPI Group has bought a large portfolio of Central European retail assets, local media reported on January 17. The investor, which has grown its holdings rapidly since ... more

CEZ ignores Czech finance minister and re-elects CEO

The supervisory board at Czech power group CEZ ignored pressure from the finance ministry to dump the current management, local media report. Finance Minister Andrej Babis has been accumulating ... more

Japan’s Asahi buys a huge round in Central Europe

Asahi has beaten a host of regional heavyweights in the race to buy SABMiller’s Central and Eastern European beer brands, the Japanese brewer announced on December 13. The Asian giant said it ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss