Abstract
The economy is growing strongly on account of improving domestic demand and robust exports. Fiscal policy has been supportive of the recovery and the authorities’ medium-term fiscal objective is appropriate, but fiscal framework legislation that would anchor policy is yet to be approved. The central bank’s use of an exchange rate floor as an additional instrument to achieve its inflation objective, in the context of the inflation- targeting framework, has helped stem deflationary pressures, but inflation is still well below target. The financial system is sound and resilient to shocks. The challenge for the authorities is to safeguard macroeconomic stability and create conditions for strong and sustainable growth. Policy recommendations. • Fiscal policy. Maintain a supportive fiscal stance this year, but embark on a modest and very gradual fiscal consolidation thereafter, consistent with the medium-term deficit objective. Embed this objective in a comprehensive framework to enhance its effectiveness in anchoring fiscal policy. Improve budget composition, with higher capital spending to address infrastructure needs offset by efficiency gains in current expenditure and improved revenue administration. • Monetary policy. Continue to focus on inflation targeting in policymaking and communication, and maintain supportive monetary conditions until deflation risks recede and inflation expectations become entrenched around the inflation target. Consider carefully the timing and mechanics of the eventual normalization of monetary policy. • Financial sector. Remain vigilant and be ready to address possible risks to financial stability. • Structural reforms. Remove impediments to higher potential growth, including through policies to increase labor market participation of certain segments of the population, enhance investment in human and physical capital, and improve the business climate.
Fund Relations
(As of June 10, 2015; unless specified otherwise)
Membership Status: Joined 01/01/1993; Article VIII
General Resources Account
| SDR Million | Percent of Quota | |
| Quota | 1,002.20 | 100.0 |
| Fund Holdings of Currency | 651.85 | 65.04 |
| Reserve position in Fund | 350.35 | 34.96 |
| Lending to the Fund | ||
| Borrowing Agreement | 27.70 |
| SDR Million | Percent of Quota | |
| Quota | 1,002.20 | 100.0 |
| Fund Holdings of Currency | 651.85 | 65.04 |
| Reserve position in Fund | 350.35 | 34.96 |
| Lending to the Fund | ||
| Borrowing Agreement | 27.70 |
SDR Department:
| SDR Million | Percent Allocation | |
| Net Cumulative Allocation | 780.20 | 100.0 |
| Holdings | 751.61 | 96.34 |
| SDR Million | Percent Allocation | |
| Net Cumulative Allocation | 780.20 | 100.0 |
| Holdings | 751.61 | 96.34 |
Outstanding Purchases and Loans: None
Financial Arrangements:
| Amount Approval | Amount Expiration | Approved | Drawn | |
|---|---|---|---|---|
| Type | Date | Date | (SDR Million) | (SDR Million) |
| Stand-by | 3/17/1993 | 3/16/1994 | 177.00 | 70.00 |
| Amount Approval | Amount Expiration | Approved | Drawn | |
|---|---|---|---|---|
| Type | Date | Date | (SDR Million) | (SDR Million) |
| Stand-by | 3/17/1993 | 3/16/1994 | 177.00 | 70.00 |
Projected Payments to Fund:
(SDR Million; based on existing use of resources and present holdings of SDRs):
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Principal | |||||
| Charges/Interest | 0.01 | 0.03 | 0.03 | 0.03 | 0.03 |
| Total | 0.01 | 0.03 | 0.03 | 0.03 | 0.03 |
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Principal | |||||
| Charges/Interest | 0.01 | 0.03 | 0.03 | 0.03 | 0.03 |
| Total | 0.01 | 0.03 | 0.03 | 0.03 | 0.03 |
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 (CNB) 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 had 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 the 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. Since then, the koruna traded between CZK 27.0 and CZK 28.33 per euro. The de facto exchange rate arrangement was retroactively reclassified from other managed to a stabilized arrangement, effective November 19, 2013. The de jure exchange rate arrangement remains floating. On June 10, 2015, the exchange rate stood at CZK 27.27 per euro and CZK 24.10 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 August 27, 2014. The staff report and the press release were published on September 2, 2014.
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, 1991–2015
Czech Republic: Technical Assistance, 1991–2015
| Department | Timing | Purpose |
|---|---|---|
| FAD | December 1991–September 1993 | Regular visits by FAD consultant on VAT administration |
| March 1993 | Public financial management | |
| September 1993 | Follow-up visit on public financial management | |
| November 1993 | Follow-up visit on public financial management | |
| January 1994 | Follow-up visit on public financial management | |
| July 1994 | Follow-up visit by FAD consultant on VAT administration | |
| May 1995 | Follow-up visit on public financial management | |
| June 1995 | Follow-up visit by FAD consultant on VAT administration | |
| June–July 1999 | Medium-term fiscal framework | |
| MCM | February 1992 | Monetary management and research, foreign exchange operations, and banking supervision |
| June 1992 | Monetary research | |
| July 1992 | Long-term resident expert assignment in the area of banking supervision (financed by EC-PHARE; supervised by the Fund) | |
| December 1992 and | Bond issuance and monetary management | |
| February 1993 | Follow-up visit on bond issuance and monetary | |
| November 1993 | management and management of cash balances Data management and monetary research | |
| April 1994 | Foreign exchange laws (jointly with LEG) and external | |
| January 1995 | liberalization | |
| May 1995 | Monetary operations | |
| May 1995 | Banking system reform | |
| May 1996 | Economic research | |
| April 1997 | Banking legislation | |
| February–June 1999 | Monetary research–inflation targeting | |
| June 1999 | Integrated financial sector supervision (with WB) | |
| RES | September 1999 | Inflation targeting (financed by MFD) |
| June–August 2000 | Inflation targeting (financed by MFD) | |
| February–March 2005 | Inflation targeting (financed by MFD) | |
| STA | May 1993 | Money and banking statistics |
| February 1994 | Balance of payments | |
| April 1994 | Government finance | |
| November 1994 | Money and banking statistics | |
| January–February 1999 | Money and banking statistics | |
| May 2002 | Monetary and financial statistics | |
| February 2003 | Implementing GFSM 2001 | |
| November 2006 | GFSM 2001 Pilot Project GFSM 2001 implementation |
Czech Republic: Technical Assistance, 1991–2015
| Department | Timing | Purpose |
|---|---|---|
| FAD | December 1991–September 1993 | Regular visits by FAD consultant on VAT administration |
| March 1993 | Public financial management | |
| September 1993 | Follow-up visit on public financial management | |
| November 1993 | Follow-up visit on public financial management | |
| January 1994 | Follow-up visit on public financial management | |
| July 1994 | Follow-up visit by FAD consultant on VAT administration | |
| May 1995 | Follow-up visit on public financial management | |
| June 1995 | Follow-up visit by FAD consultant on VAT administration | |
| June–July 1999 | Medium-term fiscal framework | |
| MCM | February 1992 | Monetary management and research, foreign exchange operations, and banking supervision |
| June 1992 | Monetary research | |
| July 1992 | Long-term resident expert assignment in the area of banking supervision (financed by EC-PHARE; supervised by the Fund) | |
| December 1992 and | Bond issuance and monetary management | |
| February 1993 | Follow-up visit on bond issuance and monetary | |
| November 1993 | management and management of cash balances Data management and monetary research | |
| April 1994 | Foreign exchange laws (jointly with LEG) and external | |
| January 1995 | liberalization | |
| May 1995 | Monetary operations | |
| May 1995 | Banking system reform | |
| May 1996 | Economic research | |
| April 1997 | Banking legislation | |
| February–June 1999 | Monetary research–inflation targeting | |
| June 1999 | Integrated financial sector supervision (with WB) | |
| RES | September 1999 | Inflation targeting (financed by MFD) |
| June–August 2000 | Inflation targeting (financed by MFD) | |
| February–March 2005 | Inflation targeting (financed by MFD) | |
| STA | May 1993 | Money and banking statistics |
| February 1994 | Balance of payments | |
| April 1994 | Government finance | |
| November 1994 | Money and banking statistics | |
| January–February 1999 | Money and banking statistics | |
| May 2002 | Monetary and financial statistics | |
| February 2003 | Implementing GFSM 2001 | |
| November 2006 | GFSM 2001 Pilot Project GFSM 2001 implementation |
Statistical Issues
| General: | |
| • Data provision is adequate for surveillance. | |
| National Accounts: | |
| • 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. The Czech Republic adopted the European System of Accounts 2010 (ESA 2010) in September 2014. The transition from the ESA 1995 (ESA95) required the revision of national accounts data. | |
| Price Statistics: | |
| • The Czech Statistical Office (CSO) compiles and disseminates a monthly consumer price index (CPI) using a weighting structure based on expenditure data collected during 2012. Weights are updated biannually. A monthly Harmonized Index of Consumer Prices (HICP) is disseminated according to European regulations. The producer price index is released monthly with coverage including manufacturing, construction, agriculture, and select business services (business to business only). The CSO also compiles and releases monthly import and export price indexes based on data collected directly from establishments engaged in export and/or import activities. | |
| Government Finance Statistics: | |
| • Annual and quarterly fiscal data are compiled on ESA2010 basis by the Czech Statistical Office, including non-financial accounts, financial accounts, and financial balance sheets. The Ministry of Finance uses the ESA methodology for the Convergence Program targets. The ESA 2010 methodology includes a wider coverage of the general government sector, different classification of some government transactions, and impacts the calculation of GDP. Government transactions are recorded on an accrual basis. | |
| Monetary and Financial Statistics: | |
| • 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 data published in the International Financial Statistics (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. | |
| Financial sector surveillance: | |
| • CNB is reporting Financial Soundness Indicators for Deposit Takers on a quarterly basis. | |
| External sector statistics: | |
| • 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. Balance of payments financial account transactions are generally derived from changes in stock data adjusted by exchange rate, price, and other changes; they are not directly based on the value of current transactions. Quarterly external debt statistics are reported to the Quarterly External Debt Statistics (QEDS) database. | |
| Subscriber to the Fund’s Special Data Dissemination Standard since April 1998. | Data ROSC was published on July 1, 2000. |
| General: | |
| • Data provision is adequate for surveillance. | |
| National Accounts: | |
| • 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. The Czech Republic adopted the European System of Accounts 2010 (ESA 2010) in September 2014. The transition from the ESA 1995 (ESA95) required the revision of national accounts data. | |
| Price Statistics: | |
| • The Czech Statistical Office (CSO) compiles and disseminates a monthly consumer price index (CPI) using a weighting structure based on expenditure data collected during 2012. Weights are updated biannually. A monthly Harmonized Index of Consumer Prices (HICP) is disseminated according to European regulations. The producer price index is released monthly with coverage including manufacturing, construction, agriculture, and select business services (business to business only). The CSO also compiles and releases monthly import and export price indexes based on data collected directly from establishments engaged in export and/or import activities. | |
| Government Finance Statistics: | |
| • Annual and quarterly fiscal data are compiled on ESA2010 basis by the Czech Statistical Office, including non-financial accounts, financial accounts, and financial balance sheets. The Ministry of Finance uses the ESA methodology for the Convergence Program targets. The ESA 2010 methodology includes a wider coverage of the general government sector, different classification of some government transactions, and impacts the calculation of GDP. Government transactions are recorded on an accrual basis. | |
| Monetary and Financial Statistics: | |
| • 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 data published in the International Financial Statistics (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. | |
| Financial sector surveillance: | |
| • CNB is reporting Financial Soundness Indicators for Deposit Takers on a quarterly basis. | |
| External sector statistics: | |
| • 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. Balance of payments financial account transactions are generally derived from changes in stock data adjusted by exchange rate, price, and other changes; they are not directly based on the value of current transactions. Quarterly external debt statistics are reported to the Quarterly External Debt Statistics (QEDS) database. | |
| Subscriber to the Fund’s Special Data Dissemination Standard since April 1998. | Data ROSC was published on July 1, 2000. |
Table of Common Indicators Required for Surveillance
(As of June 10, 2015)
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).
Table of Common Indicators Required for Surveillance
(As of June 10, 2015)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | |
|---|---|---|---|---|---|
| Exchange Rates | current | current | D | D | D |
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | May 2015 | Jun. 2015 | D | M | M |
| Reserve/Base Money | Apr. 2015 | May 2015 | M | M | M |
| Broad Money | Apr. 2015 | May 2015 | M | M | M |
| Central Bank Balance Sheet | Apr. 2015 | May 2015 | M | M | M |
| Consolidated Balance Sheet of the Banking System | Apr. 2015 | May 2015 | M | M | M |
| Interest Rates2 | current | current | D | D | D |
| Consumer Price Index | May 2015 | Jun. 2015 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 2014 Q4 | Jun. 2015 | Q | Q | Q |
| Revenue, Expenditure, Balance and Composition of Financing3 – Central Government | May 2015 | Jun. 2015 | M | M | M |
| Stocks of Central Government and Central Government-Guaranteed Debt5 | 2014 Q4 | May 2015 | Q | Q | Q |
| External Current Account Balance | Mar. 2015 | May 2015 | M | M | M |
| Exports and Imports of Goods and Services | Mar. 2015 | May 2015 | M | M | M |
| GDP/GNP | 2015 Q1 | May 2015 | Q | Q | Q |
| Gross External Debt | 2014 Q4 | Mar. 2015 | Q | Q | Q |
| International Investment Position6 | 2014 Q4 | Mar. 2015 | Q | Q | Q |
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).
Table of Common Indicators Required for Surveillance
(As of June 10, 2015)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | |
|---|---|---|---|---|---|
| Exchange Rates | current | current | D | D | D |
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | May 2015 | Jun. 2015 | D | M | M |
| Reserve/Base Money | Apr. 2015 | May 2015 | M | M | M |
| Broad Money | Apr. 2015 | May 2015 | M | M | M |
| Central Bank Balance Sheet | Apr. 2015 | May 2015 | M | M | M |
| Consolidated Balance Sheet of the Banking System | Apr. 2015 | May 2015 | M | M | M |
| Interest Rates2 | current | current | D | D | D |
| Consumer Price Index | May 2015 | Jun. 2015 | M | M | M |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 2014 Q4 | Jun. 2015 | Q | Q | Q |
| Revenue, Expenditure, Balance and Composition of Financing3 – Central Government | May 2015 | Jun. 2015 | M | M | M |
| Stocks of Central Government and Central Government-Guaranteed Debt5 | 2014 Q4 | May 2015 | Q | Q | Q |
| External Current Account Balance | Mar. 2015 | May 2015 | M | M | M |
| Exports and Imports of Goods and Services | Mar. 2015 | May 2015 | M | M | M |
| GDP/GNP | 2015 Q1 | May 2015 | Q | Q | Q |
| Gross External Debt | 2014 Q4 | Mar. 2015 | Q | Q | Q |
| International Investment Position6 | 2014 Q4 | Mar. 2015 | Q | Q | Q |
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).