Czech Republic’s National Debt Surges, Raising Concerns of Unsustainable Trajectory

The Czech Republic is experiencing a sharp increase in its national debt, which has surprised the public and economic experts and analysts. According to Lukáš Kovanda, the chief economist at Trinity Bank, the country is accumulating debt 25 times faster than it did during the eight years of the 1990s, between 1993 and 2001.

He warns that such rapid borrowing increases the risk of an unsustainable trajectory and could ultimately lead to the state’s insolvency. Kovanda also notes that the government has not proposed any relevant measures to address the situation.

The Czech government is expected to present a package of measures to address the issue in May, which Kovanda believes will be critical for the country’s economic development. However, he stresses that the government’s current approach of injecting new money into the economy has only led to further debt. He argues that the government must gradually improve the situation and avoid a currency crisis.

In December, Nomura Holdings, a Japanese financial firm, added the Czech Republic to a list of countries at risk of a currency crisis. If such a crisis were to occur, the Czech national currency could become vulnerable to international market speculators. However, Kovanda notes that the Czech koruna has been strengthening since the beginning of Russia’s invasion of Ukraine, even more so than the US dollar or Swiss franc. Therefore, he believes the Czech national currency is currently very stable and not facing any imminent threats.

Despite the positive news regarding the strength of the national currency, the country is still grappling with high inflation, which is expected to persist at current levels throughout the year. Although Kovanda anticipates that inflation may decrease by around 9-10% next year, he warns that the decline will not be significant.

Given the current situation, Kovanda stresses the importance of the government’s forthcoming package of measures, which he hopes will help to improve the country’s economic outlook. He urges the government to take decisive action to avoid a potential crisis and to address the country’s rising debt. He suggests that gradual and targeted measures will be more effective than injecting new money into the economy.