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

Evolution Equity Partners closes $125mn cybersecurity-focused fund

Evolution Equity Partners announced on 17 July the final closing of a new fund with total capital commitments of $125mn to make investments in cybersecurity and next generation enterprise software ... more

Czech-based CME divests Croatian Nova TV and Slovenian Pop TV for €230mn

Czech Republic-based broadcaster Central European Media Enterprises (CME) on July 10 announced the divestiture of its leading Croatian and Slovenian TV stations to United Group's Slovenia Broadband ... more

Central European and Baltic economies shrugging off political uncertainty

Medium-term economic growth forecasts for Central Europe and the Baltics have been raised by The Vienna Institute for International Economic Studies (wiiw) in a report issued on June 29. The most ... more