Czech Republic: Staff Report for the 2016 Article IV Consultation—Informational Annex

International Monetary Fund. European Dept.

doi:10.5089/9781475568011.002.A002

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Czech Republic: Staff Report for the 2016 Article IV Consultation—Informational Annex

Author: International Monetary Fund. European Dept.

Publication Date:: 07 Jul 2016

eISBN:: 9781475568011

Language:: English

Keywords:: ISCR; CR; EU fund absorption; indexation; EU funds; liability positions vis-à-vis nonresident; monetary management; currency of the Czech Republic; exchange rate band; government transaction; Financial statistics; Exchange rate arrangements; Monetary statistics

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A favorable external environment, high utilization of EU funds, and supportive macroeconomic policies have boosted economic growth. The authorities' medium-term fiscal objective is appropriate, but fiscal framework legislation that would anchor policy is yet to be approved by parliament. The central bank's use of an exchange rate floor to achieve its inflation target has helped stem deflationary pressures, but inflation is still well below target. The financial system is sound and resilient to shocks.

Abstract

Fund Relations

(As of April 30, 2016; unless specified otherwise)

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

General Resources Account

SDR Department:

Outstanding Purchases and Loans: None

Financial Arrangements:

Projected Payments to Fund:

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

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.

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 15, 2015. The staff report and the press release were published on July 23, 2015.

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

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

Table of Common Indicators Required for Surveillance

(As of May 19, 2016)

^¹Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

^²Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

^³Foreign, domestic bank, and domestic nonbank financing.

^⁴The 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.

^⁵Including currency and maturity composition.

^⁶Includes external gross financial asset and liability positions vis-à-vis nonresidents.

^⁷Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Table of Common Indicators Required for Surveillance

(As of May 19, 2016)

	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	Apr. 2016	May 2016	D	M	M
Reserve/Base Money	Apr. 2016	May 2016	M	M	M
Broad Money	Apr. 2016	May 2016	M	M	M
Central Bank Balance Sheet	May 2016	May 2016	M	M	M
Consolidated Balance Sheet of the Banking System	Mar. 2016	Apr. 2016	M	M	M
Interest Rates²	current	current	D	D	D
Consumer Price Index	Apr. 2016	May 2016	M	M	M
Revenue, Expenditure, Balance and Composition of Financing³ – General Government⁴	2015 Q4	May 2016	Q	Q	Q
Revenue, Expenditure, Balance and Composition of Financing³ – Central Government	Mar 2016	Apr. 2016	M	M	M
Stocks of Central Government and Central Government-Guaranteed Debt⁵	2015 Q4	May 2016	Q	Q	Q
External Current Account Balance	Mar. 2016	May 2016	M	M	M
Exports and Imports of Goods and Services	Mar. 2016	May 2016	M	M	M
GDP/GNP	2016 Q1	May 2016	Q	Q	Q
Gross External Debt	2016 Q4	Mar. 2016	Q	Q	Q
International Investment Position⁶	2016 Q4	Mar. 2016	Q	Q	Q

^¹Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

^²Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

^³Foreign, domestic bank, and domestic nonbank financing.

^⁵Including currency and maturity composition.

^⁶Includes external gross financial asset and liability positions vis-à-vis nonresidents.

^⁷Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Table of Common Indicators Required for Surveillance

(As of May 19, 2016)

	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	Apr. 2016	May 2016	D	M	M
Reserve/Base Money	Apr. 2016	May 2016	M	M	M
Broad Money	Apr. 2016	May 2016	M	M	M
Central Bank Balance Sheet	May 2016	May 2016	M	M	M
Consolidated Balance Sheet of the Banking System	Mar. 2016	Apr. 2016	M	M	M
Interest Rates²	current	current	D	D	D
Consumer Price Index	Apr. 2016	May 2016	M	M	M
Revenue, Expenditure, Balance and Composition of Financing³ – General Government⁴	2015 Q4	May 2016	Q	Q	Q
Revenue, Expenditure, Balance and Composition of Financing³ – Central Government	Mar 2016	Apr. 2016	M	M	M
Stocks of Central Government and Central Government-Guaranteed Debt⁵	2015 Q4	May 2016	Q	Q	Q
External Current Account Balance	Mar. 2016	May 2016	M	M	M
Exports and Imports of Goods and Services	Mar. 2016	May 2016	M	M	M
GDP/GNP	2016 Q1	May 2016	Q	Q	Q
Gross External Debt	2016 Q4	Mar. 2016	Q	Q	Q
International Investment Position⁶	2016 Q4	Mar. 2016	Q	Q	Q

^¹Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

^²Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

^³Foreign, domestic bank, and domestic nonbank financing.

^⁵Including currency and maturity composition.

^⁶Includes external gross financial asset and liability positions vis-à-vis nonresidents.

^⁷Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

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Czech Republic: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Czech Republic

Author: International Monetary Fund. European Dept.

Volume/Issue:: Volume 2016: Issue 213

Publisher:: International Monetary Fund

ISBN:: 9781475568011

ISSN:: 1934-7685

Pages:: 73

DOI:: https://doi.org/10.5089/9781475568011.002

Keywords
Fund Relations
Statistical Issues

Table of Common Indicators Required for Surveillance

(As of May 19, 2016)

	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	Apr. 2016	May 2016	D	M	M
Reserve/Base Money	Apr. 2016	May 2016	M	M	M
Broad Money	Apr. 2016	May 2016	M	M	M
Central Bank Balance Sheet	May 2016	May 2016	M	M	M
Consolidated Balance Sheet of the Banking System	Mar. 2016	Apr. 2016	M	M	M
Interest Rates²	current	current	D	D	D
Consumer Price Index	Apr. 2016	May 2016	M	M	M
Revenue, Expenditure, Balance and Composition of Financing³ – General Government⁴	2015 Q4	May 2016	Q	Q	Q
Revenue, Expenditure, Balance and Composition of Financing³ – Central Government	Mar 2016	Apr. 2016	M	M	M
Stocks of Central Government and Central Government-Guaranteed Debt⁵	2015 Q4	May 2016	Q	Q	Q
External Current Account Balance	Mar. 2016	May 2016	M	M	M
Exports and Imports of Goods and Services	Mar. 2016	May 2016	M	M	M
GDP/GNP	2016 Q1	May 2016	Q	Q	Q
Gross External Debt	2016 Q4	Mar. 2016	Q	Q	Q
International Investment Position⁶	2016 Q4	Mar. 2016	Q	Q	Q

^¹Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

^²Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

^³Foreign, domestic bank, and domestic nonbank financing.

^⁵Including currency and maturity composition.

^⁶Includes external gross financial asset and liability positions vis-à-vis nonresidents.

^⁷Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

	SDR Million	Percent of Quota
Quota	2,180.20	100.00
IMF’s Holding of Currency (holding Rate)	1,837.65	84.29
Reserve Tranche Position	342.56	15.71
Lending to the Fund
Borrowing Agreement	6.48

	SDR Million	Percent of Quota
Quota	2,180.20	100.00
IMF’s Holding of Currency (holding Rate)	1,837.65	84.29
Reserve Tranche Position	342.56	15.71
Lending to the Fund
Borrowing Agreement	6.48

	SDR Million	Percent Allocation
Net Cumulative Allocation	780.20	100.00
Holdings	457.18	58.60

	SDR Million	Percent Allocation
Net Cumulative Allocation	780.20	100.00
Holdings	457.18	58.60

		Forthcoming
	2016	2017	2018	2019	2020
Principal
Charges/Interest	0.11	0.19	0.19	0.19	0.19
Total	0.11	0.19	0.19	0.19	0.19

I. Assessment of Data Adequacy for Surveillance
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.
II. Data Standards and Quality
Subscriber to the Fund’s Special Data Dissemination Standard (SDDS) since April 1998. The Czech Republic meets the SDDS requirements for coverage, periodicity, timeliness, punctuality and certification for all data categories. The Czech Republic has completed the requirements for adherence to the SDDS Plus since April 2016.	Data ROSC was published on July 1, 2000.

I. Assessment of Data Adequacy for Surveillance
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.
II. Data Standards and Quality
Subscriber to the Fund’s Special Data Dissemination Standard (SDDS) since April 1998. The Czech Republic meets the SDDS requirements for coverage, periodicity, timeliness, punctuality and certification for all data categories. The Czech Republic has completed the requirements for adherence to the SDDS Plus since April 2016.	Data ROSC was published on July 1, 2000.

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