Home Ratings and Research Currently valid ACRA Europe upgrades unsolicited credit ratings of the Czech Republic to AA, outlook Stable
ACRA Europe upgrades unsolicited credit ratings of the Czech Republic to AA, outlook Stable
Friday, 24 January 2020

The Czech Republic (hereinafter, the country) has been assigned the following ratings:

  • Long-term foreign currency credit rating at AA and local currency credit rating at AA;
  • Short-term foreign currency credit rating at S1+ and local currency credit rating at S1+.

The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable.

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

The long-term credit rating of the country has been upgraded to AA from AA-. The upgrade reflects material changes in ACRA Europe’s sovereign methodology, namely a revised approach to weighting of indicators and a set of newly introduced indicators, both of which better reflect the risk of sovereign default, in ACRA Europe’s view.

Credit rating rationale

Positive rating assessment factors · Strong fiscal position backed by adequate fiscal rules. · Buoyant economy with solid growth outlook. · Strong credibility of monetary policy. · Sound financial sector. · Strong reserve coverage ratios. · Solid institutional factors.
Negative rating assessment factors · Relatively high external debt. · Relatively high dependence on the automotive industry and exports to Germany.
Stable outlook · The Stable outlook assumes that the rating will most likely stay unchanged within the
12 to 18-month horizon.
Potential rating upgrade factors · Further improvement in the institutional framework. · Strengthening economic diversification and innovative capacity. · Reduction of external debt. · Addressing fiscal challenges related to aging.
Potential rating downgrade factors · Substantial increase in the public debt load and/or debt servicing costs. · Material deterioration in institutional quality.

Sovereign model results

Block Indicative credit rating for the block Modifier Score Modifier corrections to the indicative credit rating Final credit rating for the block
Macroeconomic position AA+ Potential economic growth 0 0 AA+
Sustainability of economic growth -1
Efficacy of structural, economic and monetary policies +1
Public finance AAA Contingent liabilities and risk of them materializing on the sovereign’s balance sheet 0 +1 AAA
Fiscal policy framework and fiscal flexibility +1
Market access and sources of funding 0
Debt sustainability +1
External position AA Balance of payment vulnerabilities 0 0 AA
External debt sustainability 0
Stability of currency regime n/a
Institutional framework AA Willingness to pay 0 0 AA
History of defaults 0
Political instability and recent political decisions 0
Involvement in geopolitical conflicts, exposure to geopolitical risks 0

Assigned credit rating

Indicative credit rating

AA

Modifier corrections to the indicative credit rating

0

Final credit rating

AA

Assigned credit rating

AA

The AA Indicative credit rating was used to obtain the Final credit rating, even though the core part of the rating model put Czech Republic at AA+. According to the methodology, this conservative correction was made because the indicative score crossed the AA+ lower boundary by a marginal amount.

MACROECONOMIC SITUATION AND ECONOMIC POTENTIAL

Trade openness and a high share of manufacturing makes the economy more susceptible to global fluctuations

The Czech Republic is an advanced economy with a GDP per capita (by purchasing power parity) of over 38,800 international dollars (IMF, 2019 estimate), the highest among the EU-CEE countries. As a small and very open economy (exports contribute to nearly 80% of GDP) with a high share of manufacturing in total output (gross value added in manufacturing accounts for 23% of GDP, the second highest in the EU), it is more susceptible to the global economic cycle, especially to developments in the German economy. This was demonstrated at the height of the global financial crisis in 2009, when Czech GDP fell by almost 5%, and during the European debt crisis, when the economy contracted in 2012 and 2013. Since then, the Czech economy has enjoyed fairly stable economic growth and strong job creation.

Figure 1. Export and manufacturing dependence of Czech Republic and its peers

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Source: Eurostat, 2018

Job-rich growth has put strong upward pressure on wages.

The Czech economy has enjoyed favorable economic conditions in recent years. Real GDP growth averaged 3.5% in 2014 to 2018, supported mainly by household consumption and investment. Robust and job-rich economic growth has led to a strong decline in the unemployment rate from above 7% in 2013 to close to 2%, in 2019 the lowest among both EU and OECD countries. The rapid absorption of spare capacity in the labor market has translated into labor shortages and the acceleration of wage growth. Nominal wages grew by 7.6% in 2018, the highest in a decade. Robust growth continued in 2019, with nominal wages growing by 7.2% on average in the first three quarters.

Figure 2. Unemployment rate in the Czech Republic and the EU

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Source: Eurostat

The robust labor market is mitigating the impact of the weakening external environment on the economy. Growth in 2019 is only expected to slow mildly, from 2.8% to 2.5%, mainly on the back of weak gross fixed investments, which are constrained by low business confidence and lower absorption of EU funds. Household consumption remains strong, it rose 2.6% year-on-year in Q3 2019. The contribution of net exports to 2019 GDP growth is expected to be almost neutral as the growth of exports and imports is decelerating markedly.

Figure 3. Contribution of particular components to the change of GDP

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Source: AMECO

The Czech economy is closely tied to the German economic cycle.

The outlook for 2020 and 2021 is solid despite the challenging external environment. Major international institutions project the economy to grow between 2.1% and 2.6%, also given the expectations of increased absorption of EU funds toward the end of the seven-year programming period. The risks are, however, tilted to the downside and related mainly to international trade tensions. Although the Czech economy’s direct exposure to the centers of the trade spats (the US, China, and the UK) is rather limited (the share of exports to these three countries is lower than 8%), Germany, the country’s main trading partner, is much more exposed (with a share of more than 20%).

Diversification of exports by partners is rather weak. In the first eleven months of 2019, more than 30% of country’s merchandise exports went to Germany. The four biggest export markets account for more than 50% of all exports. This makes the Czech economy susceptible to country-specific shocks. Since the Czech Republic became a member of the EU in 2004, the correlation of the country’s GDP growth with Germany has been the second highest among the EU countries.

Figure 4. Share of manufacturing of motor vehicles in total employment in the EU

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Sources: Eurostat, ACRA Europe

The automotive industry constitutes the backbone of the Czech economy.

In terms of products, exports are heavily skewed towards the automotive industry. In the first eleven months of 2019, it accounted for 28% of country’s exports. The Czech Republic is the second largest car producer per capita in the world (with around 130 motor vehicles per 1,000 people) after Slovakia. The industry directly accounts for 4.5% of employment. This makes the economy susceptible to global car demand. In the longer term, the sector is expected to undergo major changes due to the increasing penetration of electric vehicles, growing shared economy, and the emergence of self-driving cars. Failing to respond to these challenges could have a considerable negative impact on economic growth and employment.

EU transfers are likely to decline in the next budgeting period.

EU transfers have made an important contribution to economic growth in recent years. The Czech Republic has received 16.8 bln EUR in the five-year period ending 2018, which constitutes 2.1% of gross national income on average. Despite being below the EU-CEE average, it is very likely that in terms of GDP share, net EU funding will decline in the upcoming 2021–2027 EU budgeting period and, thus, contribute less to GDP growth.

Wages have decoupled from productivity in recent years. Aggregate labor productivity has been growing slower than wages since 2015. On average, nominal wages grew by 5.0% year-on-year (3.7% in real terms) in 2014–2018, while productivity grew only by 2.2%. Yet, from a medium-term perspective, in ACRA Europe’s view the risk of a substantial loss of competitiveness is contained as the share of labor costs on gross value added at 48.2% (2019 estimate) is still well below the aggregate EU level estimated at 53.8%.

Figure 5. Share of compensation of employees on gross value added in the EU

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Sources: AMECO, ACRA Europe, 2019 estimate

Most of the R&D indicators are close to the EU average.

Moreover, the outlook for country’s competitiveness is supported by solid investment rates (the average for 2014–2018 stands at 26.4% compared to the EU-CEE average of 22.2% and EU average of 21.2%) and moderate innovative capacity. R&D expenditures averaged 1.8% in 2016–2018, slightly below the EU average of 2.1% and well above the EU-CEE average at 1.1%. Similarly, the number of R&D personnel per capita is close to the EU average, and well above the average of the regional peers. In the latest PISA testing, the average score for reading, mathematics and science stood at 495 pts, slightly higher than the OECD average of 488 pts. Nevertheless, the solid R&D and education figures have not translated into strong domestic innovations yet. Productivity is currently driven mostly by large foreign companies and the domestic value added in gross exports remains low by OECD standards (62.3% in 2016).

Figure 6. R&D spending (% of GDP) in the EU-CEE countries

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Sources: Eurostat, ACRA Europe, 2016–2018 average

The country’s solid competitiveness is underpinned by relatively high scores in global competitiveness rankings: 32nd in the WEF Global Competitiveness Report, 41st in the Doing Business Report, and 23rd in the Economic Freedom Index. According to the World Bank’s Doing Business survey, the country would benefit from reducing the administrative burden, mainly when dealing with construction permits and starting new businesses.

The projected decline in the working age population is the lowest in the EU-CEE region.

Demographic development is a constraining factor for the country’s growth. The working age population peaked in 2009 and has been declining ever since. Eurostat projects a further decline of around 6% by 2040. This projected decline is the lowest among the EU-CEE countries (the EU-CEE average stands at -16%), primarily due to positive net migration expectations. In 2014–2018, annual net migration stood at +0.24%, the highest among the EU-CEE countries.

Figure 7. Projected change in the working age population by 2040 for the EU-CEE countries

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Sources: Eurostat, ACRA Europe, 2018

Taking all this into account, the Czech economy is expected to grow by around 2.5% annually this decade before slowing to below 2% in the following decades. The long-term growth potential could increase as a result of improvement of the innovative capacity of the economy, better demographics or a positive global productivity shock.

The Czech National Bank has successfully fought deflationary pressures by introducing a one-sided peg.

The credibility of the monetary policy is strong in ACRA Europe’s view. Inflation expectations are well anchored. The Czech National Bank (CNB) successfully fought deflationary pressures in 2014–2016 by introducing an exchange rate floor at EUR/CZK 27. As inflation returned and the economy was running above its potential, the CNB prudently increased its two-week repo rate from 0.05% to 2%, one of the highest among the advanced economies.

Figure 8. Dynamics of HICP inflation and its components

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Sources: Eurostat, ACRA Europe

In 2018, the average annual HICP inflation stood at 2%, exactly at the CNB’s inflation target. Inflation picked up in 2019, mainly on the back of services price inflation supported by strong wage growth. In 2019, the average annual HICP inflation reached 2.6%, its highest since 2012. Inflation is expected to ease somewhat in 2020 given weaker economic growth. However, it is likely to remain above the inflation target as the strong increase in wages will continue to spill over into prices in the non-tradable service sector.

PUBLIC FINANCE  

The Czech Republic’s fiscal position is strong. The government utilizes strong economic growth to reduce its debt load. General government debt to GDP fell from its 2013 peak of 44.9% GDP (according to the EU definition) to 32.6% in 2018 and it is projected to decline further given the country’s sound budget policies.

Figure 9. Dynamics of general government debt to GDP

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Sources: Eurostat, ACRA Europe

The general government debt load is among the lowest in the EU.

The government has been running surpluses since 2016. Given moderating growth and increases in public spending, the country’s fiscal policy is expected to turn roughly neutral in 2020. Nevertheless, debt load reduction is expected to continue in light of solid nominal GDP growth projections, to around 30% of GDP in 2020. Interest expenditures are low by EU standards. In 2018, they accounted for 0.8% of GDP (the EU weighted average stood at 1.8%) and are expected to remain roughly stable in the coming years as solid nominal growth will counterbalance the effect of higher interest rates.

The Czech Republic’s fiscal stance has become more counter-cyclical in recent years. The structural balance of the general government (according to the EU definition) increased from -3.8% potential GDP in 2010 to 0.5% in 2018. The European Commission expects the structural balance to turn slightly negative in 2019. However, ACRA Europe expects the country’s sound fiscal policies to continue in light of country’s fiscal rules that cap the general government structural deficit at 0.75% of potential GDP from 2020 and the debt to GDP ratio at 55% of GDP.

The share of FX debt in total debt is low.

The structure of general government debt does not indicate any substantial weakness. According to Eurostat, external debt accounted for 40.1% of total debt, while FX accounted for 12% in 2018; this is lower than the average for non-Eurozone EU-CEE countries. The low share of FX debt in particular indicates the country’s strong ability to issue debt in local currency. Average residual maturity is moderate and stood at 6.1 years in December 2019, according to the ECB figures.

Figure 10. Risk characteristics of government debt compared to non-Eurozone EU CEE peers

  External debt share (2018) Foreign currency share (2018) Reserves/FX debt (2018) Residual maturity (12/2019)
Czech Republic 40% 12% 15.3 6.1 years
Poland 50% 31% 1.4 4.8 years
Hungary 37% 23% 1.3 4.0 years
Croatia 37% 75% 0.6 4.7 years
Romania 48% 50% 1.0 6.8 years
Bulgaria 44% 82% 2.5 6.0 years

Sources: Eurostat, ECB, ACRA Europe

The Czech Republic’s fiscal flexibility is moderate in ACRA Europe’s view. General government revenue to GDP stood at 41.7% in 2018 (it should increase slightly to 41.8% in 2019) and stands well below the EU average of 45.1%. This indicates certain room to increase tax revenues, if necessary. Looking at the structure of public expenditures, the ratio of public spending on wages, social benefits, and interest payments to total revenues stood at 60.6% in 2018, well below the 71.4% EU-average, giving the government moderate leeway on the expenditure side.

Contingent liabilities are low. In the non-financial sector, they are almost exclusively related to the liabilities of State-owned enterprises, accounting for 9.8% of GDP in 2017. The risk of their materialization on the government’s balance sheet is low in ACRA Europe’s view, due to the negligible share of liabilities related to loss-making SOEs (0.5% in 2017). Overall, contingent liabilities related to the non-financial sector stood at 11.1% of GDP in 2017, lower than the unweighted average for EU countries at 17.9%.

Financial sector indicators are strong.

The financial sector is sound. Non-performing loans are low, profitability is among the highest in the EU, liquidity is ample, and capital adequacy is slightly higher than the EU median (Fig. 11). Moreover, Czech Republic has the lowest share of domestically owned banks in the EU at less than 10%, which decreases the risk of banking sector contingent liabilities materializing on the government’s balance sheet. Domestically held banks tend to have poorer governance compared to foreign-owned banks and are more likely to become a liability for the government. The Czech Republic was one of the few EU countries that did not use public funds to support the banking system during the financial and debt crises.

Figure 11. Selected banking sector variables

  CET 1 ratio Leverage ratio Liquid assets to ST liabilities Return on equity Non-performing loans ratio
Czech Republic 17.3% 13.4% 62.1% 13.3% 1.6%
EU-28 median 16.6% 12.6% 40.6% 8.2% 2.5%
Period Q2 2019 Q2 2019 Q3 2019 2018 Q2 2019

Sources: ECB, ACRA Europe

There are some signs of overvaluation in the housing market. Prices are increasing steeply (8.6% in Q3 2019) mainly due to limited supply in the metropolitan areas. The five-year increase in housing prices (48.3% in Q3 2019) is the second highest among EU countries. However, the risks for the banking sector related to housing markets are low in ACRA Europe’s view in light of two factors.

Household debt remains low, despite a strong increase in residential property prices.

Firstly, household debt to GDP has barely moved in the past seven years, remaining slightly over 30% and well below the EU average of 52.3%. Moreover, the credit to GDP gap remains mildly negative according to BIS data, indicating no excessive credit growth. Secondly, the CNB has taken active steps to cool down the mortgage market and increase loss-absorbing buffers for banks. The CNB has tightened its recommendations on loan to value ratios for mortgage loans and introduced recommendations on debt to income and debt service to income ratios. Although these recommendations are non-binding, compliance with them is relatively high. The CNB is also tightening the countercyclical capital buffer rate, which will increase from 1.75% to 2% by July 2020, the second highest in the EU.

Figure 12. Credit to the private non-financial sector (% of GDP) for EU countries

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Sources: Eurostat, ACRA Europe

The projected increase in aging related costs are among the highest in the EU.

In the long term, debt sustainability will face challenges due to aging-related costs. The European Commission estimates an increase in pensions, healthcare, and long-term care costs of almost 7% of GDP by 2060. It also stated in its 2018 Fiscal Sustainability report that the Czech Republic has to undergo an upfront permanent fiscal adjustment of 4.1% of GDP in order to stabilize the debt to GDP ratio in the long term, which is the fifth highest in the EU. Nevertheless, given the country’s low debt load and sufficient time to address the future shortfall, ACRA Europe does not consider future aging-related costs as a factor constraining the Czech Republic’s creditworthiness.

Figure 13. S2 long-term debt sustainability ratio for EU countries

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Source: European Commission, 2018

EXTERNAL RISKS

The current account balance is slightly positive mainly due to a strong trade surplus.

The current account balance has been in a mild surplus since 2014 due to a strong trade surplus (6.5% of GDP in Q3 2019 on a four-quarter rolling sum basis) that reflects the strong competitiveness of Czech industry. The strong trade surplus is counterbalanced by a deeply negative balance of income resulting mainly from primary income outflows in the form of dividends from foreign direct investments. Large deficits on the income balance result from an FDI-driven growth model, following a similar pattern as the rest of the EU-CEE region. The current account is also propped up by personal remittances (employee compensation and personal transfers), which accounted for 1.6% of GDP in 2018. Given the free movement of labor within the EU, ACRA Europe views this source of funding as stable.

Figure 14. Current account balance dynamics (% of GDP)

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Sources: Eurostat, ACRA Europe

Portfolio inflows have normalized following the exit from the CNB’s exchange rate commitment.

The country’s financial account has been volatile in recent years due to large inflows of non-resident deposits and portfolio debt investments in 2016 and 2017 amid speculation that the CZK would appreciate following the exit from the CNB’s one-sided peg. In 2017, financial account inflows accounted for more than a quarter of GDP. After the exit, the portfolio inflows normalized. Aside from this period, the financial account inflows consisted mainly of foreign direct investments, which have averaged 3.8% of GDP over the past five years (Q3 2019).

External debt is also moderating following the surge of speculative capital inflows.

Speculative inflows of capital have manifested in an increase of the Czech Republic’s external debt. External debt to GDP ratio rose from 68.5% in 2015 to 93.2% in Q2 2017. It has since moderated, amounting to 79.1% in Q3 2019, due to an increase in nominal GDP, which is the third highest among non-Eurozone EU-CEE countries. These speculative inflows have also changed the structure of the external debt; the short-term part (including intercompany lending) increased to more than 55%, while the share of sectors more prone to refinancing risk (banking and private non-financial, excluding intercompany lending) increased to more than 60%.

Figure 15. External debt dynamics by sector (% of GDP)

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Sources: CNB, Eurostat, ACRA Europe

International reserves rose significantly during the exchange rate commitment.

The refinancing risk stemming from the maturity and sectoral structure of the external debt is mitigated by ample banking sector liquidity and large CNB reserves, which make a sudden strong depreciation of the currency unlikely. In maintaining the one-sided peg (November 2013 to April 2017), the CNB has accumulated reserves worth approximately EUR 90 bln. In November 2019, gross international reserves stood at EUR 133.1 bln and could cover more than ten months of imports, 240% of FX external debt, and 77% of total external debt. 

Figure 16. Selected external debt statistics compared to non-Eurozone EU-CEE peers

  External debt (% of GDP) FX external debt (share of total) Reserves (% of FX external debt) Short term external debt * (share of total) Sectors more prone to refinancing risk (share of total)**
Czech Republic 79 50 154 46 61
Poland 60 64 56 15 36
Hungary 97 75 27 11 28
Croatia 81 95 50 18 48
Romania 50 85*** 41*** 14 30
Bulgaria 64 97 75 14 46

Sources: ECB, World Bank, Eurostat, ACRA Europe, Q3 2019

* excluding intercompany loans, at original maturity

** private non-financial sector, excluding direct investment and banking sector

*** Q2 2019

The Czech koruna’s performance against the euro has been more or less stable in the past decade. After the initial appreciation following the CNB’s exit from the exchange rate commitment to keep the EUR/CZK rate above 27, the currency pair has stabilized within the 25-26 corridor. In ACRA Europe’s view, the koruna has some room to appreciate in the medium term considering the undervalued real effective exchange rate, relatively high interest rate differential between the Czech Republic and the Eurozone, and renewed increases in the CNB’s reserves.

INSTITUTIONAL FACTORS

The governance framework is solid by global standards. Political stability is well above the EU average, while control of corruption is the main constricting factor.

The Czech Republic’s institutional framework is well above the global average, but slightly below EU standards. The country scores especially strong in the Political Stability and Absence of Violence indicator. This assessment is largely attributable to the ability of governments to carry out their mandates as early elections are rare events. By contrast, the Control of Corruption indicator is the main constricting factor according to the World Bank’s Worldwide Governance Indicators. The country ranked 38th in Transparency International’s 2018 corruption perception index, where a higher rank indicates lower levels of corruption.

Figure 17. Worldwide Governance Indicators compared to EU and EU-CEE averages (global average = 0)

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Sources: World Bank, ACRA Europe, 2018

The Voice and Accountability indicator fell to the lowest level since 2005.

Looking at the trend, the quality of the institutional framework has stagnated over the past decade, indicating a lack of political will to further improve. One of the main factors constraining the improvement of the institutional framework score is the decline in the Voice and Accountability indicator, which fell to its lowest level since 2005 in 2018. This development is underpinned by the deterioration in the EIU democracy index and the Reporter’s without borders World Press Freedom Index. The country’s ranking in these indices has dropped from 16th in 2010–2011 to 34th, and from 13th in 2014–2015 to 40th, respectively.

Figure 18. Historical development of selected Worldwide Governance Indicators

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Sources: World Bank, ACRA Europe

The institutional environment for the utilization of human capital is strong. The Czech Republic scored 18th on the global scale in ACRA Europe’s Human Capital Index consisting of average years of schooling, adult mortality, and life expectancy. The country scores especially well in the schooling part.

Appendix 1. Comparative analysis of the Czech Republic and the sample group

Comparison of macroeconomic and institutional indicators for 2018

  Czech Rep. Poland Hungary Slovakia Slovenia Period
Macroeconomics GDP per capita (1000 USD, PPS) 38.8 33.9 34.0 36.6 38.4 2019 E
Real GDP growth (% y-o-y) 2.5 4.1 4.8 1.8 2.0 2019 Q3
HICP inflation (% y-o-y average) 2.6 2.1 3.4 2.8 1.7 2019
Openness of economy (% of GDP) 151 108 166 190 163 2018
Unemployment 2.1 3.2 3.4 5.8 4.8 2019 Q3
Public finance Consolidated government debt (% of GDP) 32.0 47.4 68.2 48.4 68.1 2019 Q3
External consolidated government debt (% of GDP) 13.1 24.3 25.3 28.3 43.9 2018
Consolidated government budget balance (% of GDP) 1.1 -0.2 -2.3 -1.1 0.8 2018
Interest payments (% of GDP) 0.8 1.4 2.4 1.3 2.0 2018
External position Current account (% of GDP) 0.3 -0.6 -0.5 -2.5 5.7 2018
Net international investment position (% of GDP) -18.6 -51.5 -49.2 -65.7 -17.9 2019 Q3
External debt position (% of GDP) 79.1 60.3 96.7 113.4 94.1 2019 Q3
Short-term external debt to total external debt (%) * 45.6 15.0 10.7 39.2 24.0 2019 Q3
Export diversification index *** 0.43 0.40 0.41 0.48 0.46 2018
Institutional framework ** Political stability and absence of violence 1.04 0.55 0.76 0.75 0.91 2018
Government effectiveness 0.92 0.66 0.49 0.71 1.13 2018
Rule of law 1.05 0.43 0.56 0.53 1.06 2018

* At original maturity, excluding direct investments.

** Assessment of effectiveness ranges from approximately -2.5 (weak) to 2.5 (strong).

*** Indicates the extent of differences between the country’s trade structure and the average world indicator and ranges from 0 (weak differences) to 1 (strong differences).

Sources:  IMF, World Bank, Eurostat, ECB, UNCTAD

Appendix 2. List of material data sources

International Monetary Fund
World Bank
Eurostat
The Bank for International Settlements
European Commission
Organization for Economic Co-operation and Development
European Central Bank
Czech National Bank
Czech Statistical Office

Appendix 3. Key indicators

Balance of payments, EUR bln

  2015 2016 2017 2018
Balance of goods 6.9 9.1 9.8 8.5
Exports 115.6 118.0 129.2 137.0
Imports 108.7 108.9 119.5 128.5
Balance of services 2.9 4.0 4.9 4.7
Exports 20.6 21.9 24.2 25.8
Imports 17.7 17.9 19.3 21.1
Balance of income -9.4 -10.3 -11.6 -12.6
Income receivable 9.8 10.1 12.4 12.1
Income payable 19.2 20.4 24.0 24.6
Current account  0.4 2.7 3.1 0.6
Current account, % of GDP  0.2 1.6 1.6 0.3
International reserves at the end of the period 59.2 81.3 123.4 124.5

Sources: Eurostat, ECB

 

External position (assets and liabilities), EUR bln

  2015 2016 2017 2018
External debt 115.4 129.4 171.1 169.3
long-term 62.9 66.0 73.4 68.6
short-term (up to 1 year) 52.5 63.4 97.7 100.7
External liabilities 115.4 129.4 171.1 169.3
Sovereign issuer, including 28.7 33.0 38.1 34.1
monetary authorities 2.7 3.8 6.7 6.9
consolidated government 26.1 29.2 31.4 27.3
Banks 31.4 40.6 69.7 69.0
Other sectors 55.3 55.9 63.3 66.2
       including intra-corporate loans 28.3 31.8 34.5 34.8
External assets in debt instruments 132.2 153.9 194.5 198.4
Sovereign issuer, including 55.5 75.5 114.0 115.6
central bank assets 54.3 74.2 112.8 114.8
other external assets 1.2 1.3 1.2 0.8
Banks 26.2 25.5 26.1 25.8
Other sectors 50.5 52.9 54.4 56.9
including intra-corporate loans 22.5 22.1 25.1 25.4
Net debt -16.8 -24.5 -23.4 -29.1
Sovereign issuer -26.8 -42.5 -75.9 -81.5
Banks 5.1 15.1 43.6 43.2
Other sectors 4.8 2.9 8.9 9.3
International investment position (net), % of GDP -32.9 -26.9 -25.0 -23.5
External debt, % of GDP 68.5 73.4 89.1 81.6

Sources: CNB, ECB, Eurostat

Budget indicators, % of GDP

Consolidated government 2015 2016 2017 2018
Income 41.1 40.2 40.5 41.7
Expenses 41.7 39.5 38.9 40.7
including debt servicing expenses 1.1 0.9 0.7 0.8
Primary budget balance 0.5 1.6 2.3 1.8
Overall budget balance -0.6 0.7 1.6 1.1
Consolidated government debt 40.0 36.8 34.7 32.6
% of income 98.2 91.6 88.2 77.7
Central government        
Income 29.1 28.8 28.9 29.5
Expenses 30.3 29.2 28.4 29.2
including debt servicing expenses 1.0 0.9 0.7 0.7
Primary budget balance -0.2 0.5 1.3 1.1
Overall budget balance -1.2 -0.4 0.6 0.4
Central government debt 37.9 35.9 34.4 32.9
% of income 131.3 125.1 122.4 111.1
Note: nominal GDP, EUR bln 168.5 176.4 191.7 207.6

Source: Eurostat

Rating history

The rating was first released for distribution on February 1, 2019, with the last review on July 26, 2019.

Regulatory disclosure

The sovereign credit ratings have been assigned to the Czech Republic under the Methodology to assess Sovereign entities. An explanation of the importance of each rating category and a default definition is included in the ACRA Europe website. Information on the rate of historical failure is available at www.cerep.esma.europa.eu. The default rate means a percentage of ratings that were changed to default from the overall number of ratings, for each rating category and given period. The disclosure of the unsolicited rating and outlook was preceded by the approval of the Rating Committee. Since July 30, 2012, ACRA Europe has been a registered credit rating agency according to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, on credit rating agencies.

The sovereign credit ratings and their outlook are expected to be revised within 6 months following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was issued as unsolicited. The rated entity did not participate in the credit rating assignment. ACRA Europe did not have access to the rated entity’s internal documents or management. ACRA Europe, in the context of routine care, verified all sources entering the rating process and considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The rated entity was notified on January 23, 2020, and after the notification there were no changes or amendments in the rating.

ACRA Europe provided no additional services to the Czech government. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.


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