Czech Republic: Staff Report for the 2014 Article IV Consultation—Informational Annex
Author: International Monetary Fund. European Dept.
Publication Date:
02 Sep 2014
eISBN:
9781484393383
Language:
English
Keywords:
ISCR; CR; food price inflation; staff appraisal; deficit; economy; monetary management; financial asset; CNB's bulletin; budgetary funds; de jure exchange rate arrangement; Monetary statistics; Exchange rate arrangements; Financial statistics; Exchange rates; social security fund
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Growth is gaining momentum, led by strong external demand while domestic demand is also picking up. The central bank’s foreign exchange intervention policy has helped stem deflationary pressures but inflation is still well below target. Following substantial fiscal adjustment over the past three years, an easing of the fiscal stance is underway and the new government’s medium-term fiscal plans have not yet been fully elaborated. The financial system is sound and resilient to shocks, and improvements in the regulatory and supervisory architecture are ongoing. The challenge for the authorities is to create the conditions for strong and sustainable growth while maintaining macroeconomic stability.

Abstract

Growth is gaining momentum, led by strong external demand while domestic demand is also picking up. The central bank’s foreign exchange intervention policy has helped stem deflationary pressures but inflation is still well below target. Following substantial fiscal adjustment over the past three years, an easing of the fiscal stance is underway and the new government’s medium-term fiscal plans have not yet been fully elaborated. The financial system is sound and resilient to shocks, and improvements in the regulatory and supervisory architecture are ongoing. The challenge for the authorities is to create the conditions for strong and sustainable growth while maintaining macroeconomic stability.

Fund Relations

(As of June 30, 2014; unless specified otherwise)

Membership Status: Joined 01/01/1993; Article VIII

General Resources Account

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SDR Department:

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Outstanding Purchases and Loans: None

Financial Arrangements:

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Projected Payments to Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

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Exchange Rate Arrangement:

The currency of the Czech Republic is the Czech koruna, created on February 8, 1993 upon the dissolution of the currency union with the Slovak Republic, which had used the Czechoslovak koruna as its currency. From May 3, 1993 to May 27, 1997, the exchange rate was pegged to a basket of two currencies: the deutsche mark (65 percent) and the U.S. dollar (35 percent). On February 28, 1996, the Czech National Bank widened the exchange rate band from ±0.5 percent to ±7.5 percent around the central rate. On May 27, 1997, managed floating was introduced. Between 2002 and 2013, the CNB has not engaged in direct interventions in the foreign exchange market, and the de facto exchange rate regime was classified as a free float. In November 2013, facing zero lower bound for policy rates and a persistent and large undershooting of its inflation target, the CNB intervened in the market to weaken the currency, and announced its commitment to resist any appreciation beyond CZK 27 per euro. As a result, the de facto exchange rate regime was reclassified as ‘other managed’. The de jure exchange rate arrangement remains floating. On June 30 2014, the exchange rate stood at CZK 27.45 per euro and CZK 20.10 per U.S. dollar.

The Czech Republic has accepted the obligations of Article VIII and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. The Czech Republic maintains exchange restrictions for security reasons, based on UN Security Council Resolutions and Council of the European Union Regulations that have been notified to the Fund for approval under the procedures set forth in Executive Board Decision No. 144-(52/51).

Last Article IV Consultation:

The last Article IV consultation with the Czech Republic was concluded on July 24, 2013. The staff report and the press release were published on August 2, 2013.

FSAP Participation and ROSCs:

An FSAP was carried out in late 2000/ early 2001. The Financial System Stability Assessment was considered by the Executive Board on July 16, 2001, concurrently with the staff report for the 2001 Article IV Consultation. An FSAP update was carried out in 2011. ROSCs on: banking supervision; data dissemination; fiscal transparency; securities market; and transparency of monetary and financial policies were published on the Fund’s external website on July 1, 2000.

Technical Assistance: See attached table.

Implementation of HIPC Initiative: Not Applicable.

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable.

Implementation of Post-Catastrophic Debt Relief (PCDR): Not Applicable.

Safeguards Assessments: Not Applicable.

Czech Republic: Technical Assistance, 1991–2014

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Statistical Issues

1. Data provision is adequate for surveillance. The Czech Republic subscribed to the Special Data Dissemination Standard in April 1998, and metadata and annual observance reports for 2006–09 are posted on the Fund’s Dissemination Standards Bulletin Board.

2. Data on core surveillance variables are available to the Fund regularly and with minimal lags. Interest rates set by the Czech National Bank (CNB), and exchange rates are reported daily with no lag. Gross and net international reserves are reported on a monthly basis with a one week lag, as well as on a 10-day basis (with the CNB’s balance sheet) with a one-week lag. Consumer prices, reserve money, broad money, borrowing and lending interest rates, central government fiscal accounts, and foreign trade are reported monthly with a lag of between one and four weeks. Final monetary survey data are available with a lag of about one month. GDP and balance of payments data are made available on a quarterly basis with a lag of two to three months. Since 2003, the main components of the balance of payments are also available monthly. Annual data published in the Government Finance Statistics Yearbook cover all operations of the general government, including the extrabudgetary funds excluded from the monthly data. These annual data are available on a timely basis. Monthly fiscal data published in International Financial Statistics (IFS) cover state budget accounts and are available with a two- to three-month lag.

3. While data quality is generally high, some deficiencies remain in certain areas, and the authorities are taking measures to improve data accuracy.

  • National accounts data are subject to certain weaknesses. Value added in the small scale private sector is likely to be underestimated, as the mechanisms for data collection on this sector are not yet fully developed and a significant proportion of unrecorded activity stems from tax evasion. Discrepancies between GDP estimates based on the production method and the expenditure method are large and are subsumed under change in stocks. Quarterly estimates of national accounts are derived from quarterly reports of enterprises and surveys. The estimates are subject to bias because of nonresponse (while annual reporting of bookkeeping accounts is mandatory for enterprises, quarterly reporting is not) and lumping of several expenditure categories in particular quarters by respondents. Large swings in individual components of spending and the overall GDP from quarter to quarter bring into question the reliability of the quarterly data and hamper business cycle analysis. The Czech Republic is adopting the European System of Accounts 2010 (ESA 2010) in September 2014. The transition from the ESA 1995 (ESA95) requires a revision of national accounts data. New data sources will also be incorporated in the new estimates which are due to be published in September/October 2014.

  • Recently, revisions to procedures for processing export data have brought external trade statistics close to the practice in the EU. However, a continued weakness of foreign trade statistics is the unavailability of fixed base price indices for exports and imports; these indices are currently presented on the basis of the same month of the previous year. Starting in 2014, external sector statistics are compiled according to the Balance of Payments and International Investment Position Manual, sixth edition (BPM6) and in accordance with legal requirements of the ECB and Eurostat.

  • Monetary survey data provided to the European Department are generally adequate for policy purposes. However, large variations in the interbank clearing account float, especially at the end of the year, require caution in interpreting monetary developments. The CNB has made a major effort to identify the causes of these variations and adjust the data. In 2002, to meet EU statistical conventions, the CNB implemented the European Central Bank’s (ECB) framework for collecting, compiling, and reporting monetary data. The data published in IFS are based on monetary accounts derived from the ECB’s framework. The same set of accounts also forms the basis for monetary statistics published in the CNB’s bulletins and on the website, which are thereby effectively harmonized with the monetary statistics published in IFS, although the presentation in IFS differs somewhat from the CNB’s.

  • Annual and quarterly fiscal data are compiled on ESA95 basis by the Czech Statistical Office, including non-financial accounts, financial accounts, and financial balance sheets. Starting from September 2014, GFS data will be based on ESA 2010 methodology which is likely to include revisions of the general government deficit and debt levels from 1995 onwards. The Ministry of Finance uses the ESA methodology for the Convergence Program targets. Some adjustments are to be done when converting data from the national (fiscal targeting) methodology to the ESA based fiscal accounts. The differences relate mainly to the coverage of the institutions classified in the general government sector, exclusion of financial transactions, different classification of some specific government transactions (for example, called guarantees) and the time of recording of government transactions (ESA records transactions on accrual basis).

Czech Republic: Table of Common Indicators Required for Surveillance

(As of July 18, 2014)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. Data for the state budget are available with monthly frequency and timeliness, while data on extra budgetary funds are available only on an annual basis.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

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Cover IMF Staff Country Reports
Czech Republic: Staff Report for the 2014 Article IV Consultation
Author: International Monetary Fund. European Dept.
Volume/Issue:
Volume 2014: Issue 256
Publisher:
International Monetary Fund
ISBN:
9781484393383
ISSN:
1934-7685
Pages:
61
DOI:
https://doi.org/10.5089/9781484393383.002