Expenses on government debt will increase by CZK1.3bn above what has been envisaged in the 2018 budget to CZK46.5bn, deputy FinMin Karel Tyll told the parliamentary budget committee on Wednesday (Nov 7). The reason is higher-than-anticipated interest rate levels this year, as most of the increase comes from higher interest payments (about CZK50m is due to higher fees). There will be no major change in the breakdown of government debt expenses, as out of the CZK46.5bn now projected, CZK 46.1bn will go to interest and the rest — to various fees.
The government nominally expects an increase of state debt to CZK1.64 trillion at end-2018 and CZK1.69 trillion at end-2019. However, Tyll was quick to remind that the actual debt level would depend a lot on budget execution. We remind that the finance ministry expects the central government budget to end 2018 as balanced, rather than at a deficit at 0.9% of GDP. Even if a slight deficit is reported, there will be still much lower financing needs, so the odds are that government debt will indeed be lower than currently projected. Furthermore, Tyll pointed out that government debt should end 2019 at 30.2% of GDP, 2pps lower than at the end of 2017. Domestic debt will represent 86% of total by the end of 2018, with a tendency to decrease further.
MPs weren’t very convinced that debt expenses will increase, however, as it was pointed out that the finance ministry had reported lower debt expenses in both 2015 and 2017, by about 13% on average in both years. However, we doubt that this is going to be the case this year, as we are currently in a monetary tightening cycle. We expect interest expenses will inevitably rise further, given how debt yields have increased as well, especially amidst current market uncertainty.