Economic Survey of the Czech Republic 2006: Executive Summary

 

Contents | How to obtain this publication |  Additional Information

The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of the Czech Republic 2006 published on 8 June 2006.

Contents                                                                                                                           

The Czech Republic’s economic growth performance has improved and now compares favourably with other catch-up countries in the region. Low inflation and interest rates have been a strong point of the economy for some time and policy is well prepared to meet the monetary challenges of euro entry which is aimed for in 2010. However, the next government will have to face up to considerable challenges in achieving fiscal sustainability. In addition, it must push ahead in improving the labour market and enhancing the business environment.

Recent deficits have been encouragingly low but driven by revenue surprises and deferred expenditure, rather than by spending cuts. Containing deficit and debt in the long-run will be impossible without widespread public-spending and budgeting reform, not least because of the need to co-finance EU funding opportunities and upcoming spending pressures due to ageing:

  • In tackling ageing-related spending pressures some broadly agreed principles from the five pensions proposals made in 2005 provide a good basis for a final decision on reform; this ought to be high on the agenda of the next government along with the long-awaited reform of the healthcare system.
  • One area of concern is regional and municipal spending. Measures must be taken to increase efficiency among the many very small municipalities. In addition, benchmarking cost and output in services needs to become more widespread. These considerations, plus the need for structural reforms in spending areas, mean caution is required in giving more revenue flexibility to sub national governments.

In the labour market, there is persistent long-term unemployment and a general damping of employment from a large tax wedge that is difficult to cut back. While there is some progress with welcome initiatives to motivate job seekers and a better sick-pay system, the reform of the labour code has been more limited and efforts are required to improve paths to higher education. In-depth review of secondary and tertiary education reveals a need for more action to deal with the rapidly increasing demand for degree-level education:

  • The difficulties of the public universities in coping with rising student numbers would best be resolved by the introduction of tuition fees, complemented by publicly supported student loans.
  • Secondary school education needs to be better geared towards tertiary education through increased access to programmes that give options for university entrance. In addition, the early streaming of a minority of students into elite publicly funded schools should be phased-out.

Business conditions are being improved by new bankruptcy legislation and on-going efforts to reduce red tape and corruption but will require follow up. In-depth assessment of innovation policy reveals good intentions but much work remains:

  • Clearer responsibilities and some tidying up of financial arrangements in innovation policy is required, notably a reduction in the large number of budget lines providing R&D support.
  • The recently introduced tax incentives for R&D and plans for additional incentives should be carefully considered given the mixed international evidence on their cost-effectiveness.

 

How to obtain this publication                                                                                      

The Policy Brief (pdf format) in English and Czech can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

The complete edition of the Economic Survey of the Czech Republic 2006 is available from:

 

Additional information                                                                                                  

For further information please contact the Czech Republic Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Philip Hemmings and Alessandro Goglio under the supervision of Andreas Wörgötter. The drafting team was assisted by Lubomir Chaloupka (on secondment from the Czech Ministry of Finance) and Edward Whitehouse (OECD pensions specialist).

 

 

 

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