## 1. Primary Balance, 2000–05 ## Source details **Canonical URL:** [1. Primary Balance, 2000–05](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0785.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0785.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0785.pdf.json) --- ### Introduction and overview - Immediate priority: identify expenditure-based consolidation measures to lower fiscal deficits consistent with the Stability and Growth Pact. - Two core questions: - How to strengthen the fiscal institutional framework to maintain discipline and enhance transparency? - What expenditure reform priorities can be implemented without sacrificing spending quality? - Emphasis on firm commitment to the fiscal framework and stronger political will for success. - Chapters summarized: medium term expenditure framework (Chapter II); spending efficiency and flexibility (Chapter III); EU-funded project absorption (Chapter IV); fiscal accounting and GFSM 2001 pilot recommendations (Chapter V). ### Strengthening the fiscal framework (Chapter II) — key findings - Existing framework features: - Three-year rolling budgetary framework underpinned by nominal expenditure ceilings. - Fiscal targets anchored in the Convergence Program aiming to meet the 3 percent deficit limit under the Stability and Growth Pact. - Carryover provision for fiscal underspending introduced incentives for more efficient spending. - Weaknesses identified: - Upward revision of spending limits in the medium term budget for 2006 and 2007. - Abandonment of the 2005 Convergence Program targets. - Political uncertainty reduces effectiveness; stronger political will is essential. - Suggested refinements: - Strengthen the medium term expenditure framework to increase fiscal discipline in good times. - Improve flexibility of the expenditure rule. - Implement transparent monitoring and assessment of implementation to facilitate compliance. ### Fiscal trends, cyclical stance and selected statistics - Public debt and deficits: - Public debt rose rapidly since 2000, with some moderation over 2004-05. - Debt level at 27½ percent of GDP at end 2006 (in GFS 1986 terms). - On ESA-95 basis, gross debt stood at 30 percent of GDP at end 2005. - Primary deficit remains among the highest in the region. - Drivers and recent developments: - Until 2003, rising deficits driven mainly by expenditures. - 2004: medium term expenditure framework introduced; deficits fell in 2004–05, but reductions not underpinned by durable expenditure reforms. - 2004: carryforward of unspent allocations reduced year-end spending. - 2005: windfall revenue gains used to finance increases in mandatory social spending. - Budget pressures and vulnerabilities: - Regional tax competition and high tax wedge; corporate tax rate remains among the highest in new member states despite phased reduction since 2004. - Drying up of privatization revenues and large contingent liabilities from past bank restructuring and environmental guarantees. - Longer-term spending pressures for pensions and health care and co-financing needs of EU-fund pose significant challenges. - Policy target: - Over the medium term, deficits need to be lowered sustainably below the 3 percent threshold to fulfill Maastricht criteria for euro adoption. - Selected numeric indicators (1996–2006; values preserved exactly): - Nominal GDP (in bill. of CZK.): 1996: 1683; 1997: 1811; 1998: 1996; 1999: 2081; 2000: 2189; 2001: 2352; 2002: 2464; 2003: 2577; 2004: 2781; 2005: 2978; 2006: 3181. - Real GDP (percent change): 1996: -0.7; 1997: -0.8; 1998: 1.3; 1999: 3.6; 2000: 2.5; 2001: 1.9; 2002: 3.6; 2003: 4.2; 2004: 6.1; 2005: 6.0; 2006: 2.8 (Average). - Output gap (in percent of potential GDP): 1996: 0.5; 1997: -1.6; 1998: -4.0; 1999: -4.1; 2000: -3.6; 2001: -3.5; 2002: -4.5; 2003: -4.1; 2004: -3.7; 2005: -2.7; 2006: -0.9; Average: -2.9. - Revenues (percent of GDP): 1996: 39.5; 1997: 36.7; 1998: 35.5; 1999: 35.4; 2000: 35.7; 2001: 36.1; 2002: 36.8; 2003: 38.2; 2004: 38.0; 2005: 39.1; 2006: 38.8; Average: 37.3. - Expenditures (percent of GDP)1/: 1996: 41.6; 1997: 38.0; 1998: 36.8; 1999: 38.5; 2000: 38.8; 2001: 38.8; 2002: 40.6; 2003: 43.0; 2004: 41.3; 2005: 41.2; 2006: 42.5; Average: 40.1. - Noninterest expenditures: 1996: 40.3; 1997: 36.8; 1998: 35.7; 1999: 37.6; 2000: 37.9; 2001: 38.0; 2002: 40.0; 2003: 42.3; 2004: 40.2; 2005: 40.3; 2006: 41.4; Average: 39.1. - Interest expenditures: 1996: 1.2; 1997: 1.1; 1998: 1.1; 1999: 0.9; 2000: 1.0; 2001: 0.9; 2002: 0.6; 2003: 0.8; 2004: 1.1; 2005: 0.9; 2006: 1.1; Average: 1.0. - Overall balance (percent of GDP): 1996: -2.0; 1997: -1.2; 1998: -1.3; 1999: -3.1; 2000: -3.2; 2001: -2.7; 2002: -3.9; 2003: -4.8; 2004: -3.3; 2005: -2.1; 2006: -3.7; Average: -2.8. - Primary balance (percent of GDP): 1996: -0.8; 1997: -0.1; 1998: -0.2; 1999: -2.2; 2000: -2.2; 2001: -1.9; 2002: -3.2; 2003: -4.0; 2004: -2.2; 2005: -1.2; 2006: -2.6; Average: -1.9. - Change in primary balance (percent of GDP): 1996: 0.7; 1997: -0.1; 1998: -2.0; 1999: 0.0; 2000: 0.4; 2001: -1.4; 2002: -0.8; 2003: 1.9; 2004: 1.0; 2005: -1.4. - Structural balance (elasticity = 0.94): - Structural primary balance (percent of GDP): 1996: -1.0; 1997: 0.5; 1998: 1.2; 1999: -0.7; 2000: -0.9; 2001: -0.6; 2002: -1.6; 2003: -2.4; 2004: -0.7; 2005: -0.1; 2006: -2.3; Average: -0.8. - Automatic stabilizers and discretionary policy (percent of GDP): - Automatic stabilizers (1996–2005 series extract): 1996: -0.7; 1997: -0.8; 1998: -0.2; 1999: 0.2; 2000: 0.0; 2001: -0.4; 2002: 0.1; 2003: 0.2; 2004: 0.4; 2005: 0.8; average: -0.1. - Discretionary fiscal policy (1996–2005 series extract): 1996: 1.5; 1997: 0.7; 1998: -1.8; 1999: -0.3; 2000: 0.3; 2001: -0.9; 2002: -0.9; 2003: 1.7; 2004: 0.6; 2005: -2.1; average: -0.1. - Fiscal impulse and stance: - Fiscal impulse 1 (positive implies loosening): 1996: -1.5; 1997: -0.7; 1998: 1.8; 1999: 0.3; 2000: -0.3; 2001: 0.9; 2002: 0.9; 2003: -1.7; 2004: -0.6; 2005: 2.1. - Fiscal stance 5/: 1996: -1.4; 1997: -2.3; 1998: -0.4; 1999: -0.1; 2000: -0.4; 2001: 0.5; 2002: 1.5; 2003: -0.2; 2004: -0.7; 2005: 1.4; average: -0.2. ### Policy implications and recommendations (overview and chapters) - Strengthen political commitment to adhere to the fiscal framework; new fiscal rules alone will not be effective without strong political will. - Refine the medium term expenditure framework to improve flexibility and enforceability. - Prioritize expenditure reforms that enhance efficiency and budget flexibility: - Focus on healthcare and education spending for efficiency gains. - Improve targeting of existing social benefits to yield better outcomes in reducing poverty and inequality. - Recognize additional social benefit spending will yield marginal gains; better targeting preferred. - Manage EU-funded investment demands: - Restructure expenditures to create room for growth-enhancing EU-funded projects. - Address absorption capacity constraints as implementation pace increases. - Enhance public financial management and transparency: - Expand coverage of institutions and transactions in fiscal data. - Supplement source data to enhance consistency and comparability. - Implement GFSM 2001 recommendations to strengthen fiscal policy analysis and transparency. ### Fiscal framework design, fiscal rules, and enforcement - Current framework (introduced 2004) requires medium-term fiscal targets for two years beyond the budget year; no explicit fiscal rule for a budget balance. - Escape clauses and margins exist: one percent margin for the budget year and two percent for the following year; positive surprises required to lower deficits; no sanctions in event of breach. - Implementation experience: - 2005 and 2006 budgets respected preannounced medium-term deficit targets; 2007 budget relaxed the deficit target significantly despite stronger than projected growth. - No medium term targets were announced for 2007. - Upward revisions in spending: nearly ¾ percent of GDP in the 2006 budget and 1¾ percent of GDP in 2007. - At end-2005, budgetary reserves had accumulated to 1¾ percent of GDP reflecting persistent overbudgeting. - Key design considerations: - Appropriate long-term budget deficit target relates to debt-stabilizing primary balance via debt dynamics equation. - Debt-stabilizing primary balance scenarios (Table 3 preserved): - Target debt level rows include: 26 30 40 40 50 60 60. - Growth rate (in percent) scenarios: 3.7 4.6 5.0 3.0 5.0 3.0 5.0 3.0. - Real interest rate (in percent) 1/: 2.2 3.1 2.5 3.5 2.5 3.5 2.5 3.5. - Required primary balance (In percent of GDP): -0.4 -0.4 -1.0 0.2 -1.3 0.3 -1.5 0.3. - Actual primary balance: -2.5 -1.4 .............. - Recommended medium-term structural target: - Reduce structural balance by at least ½ percent of GDP annually starting from a 3 percent structural deficit in 2007 and reaching structural balance by 2013. - Fiscal rules: benefits and drawbacks - Fiscal rules can reinforce discipline but risk endogeneity bias; rigid annual deficit targets can be procyclical and encourage poor-quality adjustments or creative accounting. - Enforcement typically weaker at general government level; sanctions more common and effective at local government level. - Suggested enforcement features: - Specify Convergence Program deficit targets in coalition agreements. - Require tax or mandatory spending measures deviating from targets to be budget neutral. - Strengthen legal foundations to make spending ceilings legally binding at disaggregated budgetary chapter level. - Require government plans to offset overspending within a certain time horizon. ### Expenditure framework technical design choices and local government rules - Possible exclusions from expenditure ceilings: interest expenditure, pensions/cyclical items, public investment (with caveats), unpredictable guarantee payments (proposal: high-risk guarantees put into reserves at issuance). - To avoid rigidity: consider cyclical contingency margin; set spending ceilings at central values consistent with potential growth and desired structural adjustment. - Local government rule: debt servicing limited to 30 percent of revenues; recommendations: - Consider a balanced budget rule for regional governments. - Strengthen sanctions on municipalities for breaches. - Revise debt servicing definition to exclude debt repayments to avoid disincentives for earlier repayment. - Pensions: - Separate spending ceiling covers extra-budgetary funds; state pensions remain within state budget. - Preserving pension surpluses in a separate account could be considered to prefund aging-related costs. ### Efficiency diagnostics (DEA) and sectoral findings - Methodology: - Data Envelope Analysis (DEA) used to generate input-based technical efficiency scores (range 0–1). - Inputs adjusted into PPP terms; sample includes NMS, EU-15, OECD, Bulgaria, Romania, Ukraine, Russia. - Caveats: sample sensitivity, measurement error, unquantified spending attributes, private spending bias. - Social protection transfers: - Czech Republic operates on the efficient frontier in reducing poverty risk after transfers (sample of 23 countries). - Child allowances 2003: covered 19.2 percent of population (Czech) vs about 13.8 percent average in NMS. - Social welfare assistance: about 4 percent of Czech population vs about 3 percent in average NMS. - 2007 budget measures (explicit figures preserved): - Parental benefit allowance: increase to 40 percent of average wage; approximate cost CZK 15 billion (0.4 percent of GDP); not means tested. - Birth allowance: CZK 1 billion (under 0.1 percent of GDP); not means tested. - Housing allowance: CZK 3 billion (0.1 percent of GDP). - Contribution for elderly care: CZK 6.5 billion (0.2 percent of GDP). - Sickness insurance reform: employer payroll contribution cut from 3.3 to 2.3 percent budget neutral; Parliament phased in a lower employer contribution rate of 1.4 percent by 2009 causing net fiscal cost about CZK 12 billion (0.4 percent of GDP). - Recommendation: strengthen targeting of social benefits, especially measures increasing mandatory spending in 2007. - Health care: - Efficiency concerns: same workforce density could achieve similar outcomes with about 70 percent less spending if on efficient frontier; excluding outliers yields efficiency score ~0.6. - Standardized mortality rate reduction score: 0.4 (rank 18/22). - Healthy life expectancy score: 0.6 (rank 15/37). - Pharmaceutical spending: 25 percent of health budget vs OECD average 15 percent. - About 20 percent of long-term hospital beds dedicated to “social hospitalization” of elderly patients. - Recommendations: introduce means-tested co-payments; pare down wide coverage of public benefits; encourage private sector participation; contain pharmaceutical costs; reform hospital financing; implement Diagnosis Related Groups (DRGs) over medium term. - Education: - Relative efficiency in PISA mathematics (sample of 25 countries). - Efficiency scores: pupil-teacher ratio: 0.7; secondary graduates ratio: 0.8; tertiary graduates ratio: 0.6. - Recommendations: increase cost recovery of pre-primary and tertiary education, consider student loan programs, pilot performance-based budgeting, address regional mismatches in secondary education supply. - Flexibility of public spending: - High share of mandatory spending constrains flexibility; higher mandatory social benefits in 2007 exacerbate rigidity. - Indicators: coefficient of variation 1995-2005 somewhat lower than NMS and EU-15 averages. - Recommendation: contain growth in mandatory entitlements (review indexation rules), expand flexible work arrangements in civil service, introduce pilot performance-based budgeting, review transfer formulas. - Correlations (selected, preserving values): - Health sector correlations with relative efficiency scores: - Std. mortality rate, all causes: spending (percent of GDP) correlation = -0.5*; spending (real GDP per capita PPP) correlation = -0.6*; Countries = 21. - Healthy life expectancy: -0.6*, -0.6*; Countries = 37. - Health workforce density: -0.6*, -0.5*; Countries = 28. - Social protection: - At-risk-of-poverty: -0.1, -0.6*; Countries = 22. - Inequality: -0.2, -0.6*; Countries = 21. - Education: - Average PISA score: -0.5*, -0.6*; Countries = 25. - Note: * indicates statistically significant at the 5 percent level or better. - Additional figure: scatter of health efficiency vs Alcohol Use (liters per capita) gives R2 = 0.2. ### EU funds, absorption capacity, and fiscal implications - Allocations and absorption: - 2004-06 allocations for Czech Republic near close to 2 percent of GDP; allocations set to rise under 2007-13. - Structural and cohesion funds share rose from less than ½ in 2004-06 to around ¾ in 2007-13. - Actual net transfers 2004-06: 0.2-0.3 percent of GDP (below projected 0.4 percent) due to lower utilization. - Net transfers projected to peak close to 2 percent of GDP around 2011-13, conditional on absorption capacity. - Advance payments amounted to 16 percent of total allocations; 2004 commitments were 24 percent of allocations; actual spending of only 8 percent was needed to comply with N+2 rule at end-2006. - Institutional challenges: - Disaggregated managing authorities; regional authorities to gain more control under 2007-13; institutional rigidities impede moving resources among programs. - Recommendation: develop coordinated framework for managing EU funds to improve utilization. - Fiscal measurement and direct impact (ESA95 basis, percent of GDP; Table 1 preserved): - EU related revenue: 2004 = 0.6; 2005 = 0.5; 2006p = 0.5. - budget compensation: 2004 = 0.4; 2005 = 0.3; 2006p = 0.2. - refundable programs: 2004 = 0.2; 2005 = 0.2; 2006p = 0.3. - EU related expenditure: 2004 = 0.9; 2005 = 1.3; 2006p = 1.4. - contributions to EU budget: 2004 = 0.6; 2005 = 1.0; 2006p = 1.0. - refundable programs: 2004 = 0.2; 2005 = 0.2; 2006p = 0.3. - Net fiscal impact: 2004 = -0.3; 2005 = -0.7; 2006p = -0.8. - These represent maximum possible negative effects; actual impact lower to extent of substitution between EU-financed and domestic programs. - Policy challenges: - Co-financing pressures increase with growing funds; without offsets this pressures the deficit. - Budgeting for EU funds has been too optimistic, leaving unused appropriations booked as reserve funds (loose fiscal discipline risk). - EU-financed spending may obscure assessment of fiscal impulse because grants do not represent withdrawal of domestic demand. ### Fiscal accounting, GFSM 2001 pilot, and data coverage gaps - GFSM 2001 pilot in Czech Republic: - Pilot highlighted lack of comprehensiveness in institutional and transactional coverage compared with GFS manual guidelines. - Recasting to GFSM 2001 changed magnitudes of some balances though major trends unchanged. - GFSM 2001 consistently records lending and privatization as transactions in financial assets with no impact on net lending/borrowing. - Coverage gaps and impacts: - Approximately a 5 percentage point difference between general government debt reported by MOF and CNSO (Maastricht criteria). - MOF general government account excludes semibudgetary organizations, some state extrabudgetary institutions, and special funds (e.g., Czech Consolidation Agency and subsidiaries, Czech Collection Company, Railway Infrastructure administration, Public-private-partnership centre, public universities). - Lack of asset-stock data and other flows; policy-related loans in 2003 amounted to almost 1 percent of GDP. - Key statistics and selected figures (preserved): - Overall fiscal balance (staff reports): 3.6 percent of GDP. - Cash deficit (Cash Statement): 3.3 percent of GDP. - Policy-related loans in 2003: almost 1 percent of GDP. - Table 1 — Net lending/borrowing (percent of GDP): 2000–2005: -3.7, -5.7, -6.8, -6.6, -2.9, -3.6. - Table 1 — Revenue (percent of GDP): 2000–2005: 38.1, 38.7, 39.5, 40.7, 41.5, 40.4. - Table 1 — Expense (percent of GDP): 2000–2005: 43.1, 46.0, 46.9, 47.7, 44.2, 43.6. - Cash surplus/deficit (million CZK): 2000–2005: -87.1, -107.6, -153.1, -128.7, -97.7, -97.8. - Net cash inflow from operating activities (million CZK): 2000–2005: -27.1, -45.5, -91.2, -63.1, -24.0, -29.1. - Net cash inflow from financing activities (million CZK): 2000–2005: 80.7, 139.8, 175.8, 110.5, 114.6, 196.3. - GDP at market prices (millions of koruny): 2000–2005: 2189.2, 2352.2, 2464.4, 2577.1, 2781.1, 2970.3. - Next steps and recommendations: - Improve compilation and presentation of fiscal data in GFSM 2001 framework; broaden institutional coverage to align MOF and CNSO data. - Develop MOF data to fully comply with Statement of Sources and Uses of Cash for comprehensive general government. - Continue developing accrual accounting and integrated source data systems to enable full GFSM 2001 implementation. ### Appendix I — cyclical stance estimation methodology (summary) - Three-step approach (Hagemann, 1999; WEO-consistent): - (i) estimate potential output and output gap using production function (Cobb-Douglas) and alternative HP-filter; - (ii) quantify cyclical expenditures and revenues using estimated elasticities; - (iii) subtract cyclical components from observed levels to obtain structural budget balance. - Potential output estimates (alternative methodologies, preserved): - Production function (IMF): 1.52 2.82 3.58. - Combination (OECD): 2.23 2.78 3.84. - HP-filter (EC): 1.50 2.06 3.40. - Revenue elasticity estimates (preserved): - Personal Income Tax: 1.19; share of current revenues: 0.13. - Social Security Contributions: 0.80; share: 0.37. - Corporate Income Tax: 1.39; share: 0.13. - Indirect Tax: 1.00; share: 0.31. - Total tax revenue elasticity: 0.94. - Cyclical expenditures: only unemployment insurance benefits treated as cyclically sensitive. - Structural budget balance: SBB = t s R − t s E. - Fiscal impulse: Impulse = SBt − SBt−1 (change in structural budget balance), with alternative practice using primary structural balance. *Prepared by Anita Tuladhar; source: IMF staff report content summarized from the provided chapter.* ### 1. Primary Balance, 2000–05........................................................................................6 ### 1. Primary Balance, 2000–05 ### Introduction and Overview - The Czech Republic is debating fiscal reform on its path to euro adoption, with an immediate priority to identify expenditure-based consolidation measures to lower fiscal deficits consistent with the Stability and Growth Pact. - Two key questions examined: - How to strengthen the fiscal institutional framework to maintain discipline and enhance transparency? - What are the expenditure reform priorities that can be implemented without sacrificing spending quality? - The paper emphasizes the need for firm commitment to the fiscal framework and stronger political will for success. - Chapters summarized in the source: - Chapter II: medium term expenditure framework and proposals for strengthening it. - Chapter III: cross-country analyses of spending efficiency and flexibility; areas for fiscal adjustment. - Chapter IV: absorption capacity of EU-funded projects and implications for the budget. - Chapter V: fiscal accounting issues and GFSM 2001 pilot project recommendations. ### Strengthening the Fiscal Framework (Chapter II) — Key Findings - Existing framework: - A three-year rolling budgetary framework underpinned by nominal expenditure ceilings. - Fiscal targets anchored in the Convergence Program with a gradual adjustment path to meet the three percent deficit limit under the Stability and Growth Pact. - A carryover provision for fiscal underspending introduced incentives for more efficient spending. - Weaknesses identified: - Upward revision of spending limits in the medium term budget for 2006 and 2007. - Abandonment of the 2005 Convergence Program targets. - Political uncertainty reduces effectiveness; stronger political will is essential. - Suggested refinements: - Strengthen the medium term expenditure framework to increase fiscal discipline in good times. - Improve flexibility of the expenditure rule. - Implement transparent monitoring and assessment of implementation to facilitate compliance. ### Fiscal Trends and Key Challenges (Section B) — Findings and Statistics - Public debt and deficits: - Public debt rose rapidly since 2000, with some moderation over 2004-05. - Debt level at 27½ percent of GDP at end 2006 (in GFS 1986 terms). - On ESA-95 basis, gross debt stood at 30 percent of GDP at end 2005. - Primary deficit remains among the highest in the region. - Drivers and recent developments: - Until 2003, rising deficits were driven mainly by expenditures. - In 2004, a three-year fiscal reform program with a medium term expenditure framework was introduced; deficits fell in 2004–05. - The reduction in deficits in 2004–05 was not underpinned by durable expenditure reforms: - 2004: carryforward of unspent budget allocations reduced year-end spending. - 2005: windfall revenue gains from an export-led boom were used to finance increases in mandatory social spending, reversing favorable trends. - Budget pressures and vulnerabilities: - Regional tax competition and a high tax wedge put pressure to reduce tax rates. - Corporate tax rate remains among the highest in the new member states despite a phased reduction since 2004. - Drying up of privatization revenues used for infrastructure spending and guarantee payments would worsen debt dynamics. - Large high-risk contingent liabilities from past bank restructuring and environmental guarantees. - Longer-term spending pressures for pensions and health care and co-financing needs of EU-fund pose significant challenges. - Policy target: - Over the medium term, deficits need to be lowered sustainably below the three percent threshold to fulfill the Maastricht criteria for euro adoption. ### Fiscal Stance, Cyclical Analysis, and Drivers (Charts and Table 1 highlights) - Cyclical assessment: - Potential output estimates show a negative but closing output gap. - Fiscal stance generally expansionary between 1999–2003, as shown by positive fiscal impulse. - Fiscal policy displayed asymmetry: - Procyclical stance during cyclical upturns (good times). - Countercyclical stance during downturns (bad times). - Discretionary factors have contributed to high deficits; automatic stabilizers appear small. - Explanatory factors for small automatic stabilizers: - Relatively small share of income-related transfers and progressive direct taxes. - Lower labor market flexibility compared to OECD and EU-15 countries. - Selected numeric indicators from Table 1 (1996–2006; values preserved exactly): - Nominal GDP (in bill. of CZK.): 1996: 1683; 1997: 1811; 1998: 1996; 1999: 2081; 2000: 2189; 2001: 2352; 2002: 2464; 2003: 2577; 2004: 2781; 2005: 2978; 2006: 3181. - Real GDP (percent change): 1996: -0.7; 1997: -0.8; 1998: 1.3; 1999: 3.6; 2000: 2.5; 2001: 1.9; 2002: 3.6; 2003: 4.2; 2004: 6.1; 2005: 6.0; 2006: 2.8 (Average). - Output gap (in percent of potential GDP): 1996: 0.5; 1997: -1.6; 1998: -4.0; 1999: -4.1; 2000: -3.6; 2001: -3.5; 2002: -4.5; 2003: -4.1; 2004: -3.7; 2005: -2.7; 2006: -0.9; Average: -2.9. - Revenues (percent of GDP): 1996: 39.5; 1997: 36.7; 1998: 35.5; 1999: 35.4; 2000: 35.7; 2001: 36.1; 2002: 36.8; 2003: 38.2; 2004: 38.0; 2005: 39.1; 2006: 38.8; Average: 37.3. - Expenditures (percent of GDP)1/: 1996: 41.6; 1997: 38.0; 1998: 36.8; 1999: 38.5; 2000: 38.8; 2001: 38.8; 2002: 40.6; 2003: 43.0; 2004: 41.3; 2005: 41.2; 2006: 42.5; Average: 40.1. - Noninterest expenditures: 1996: 40.3; 1997: 36.8; 1998: 35.7; 1999: 37.6; 2000: 37.9; 2001: 38.0; 2002: 40.0; 2003: 42.3; 2004: 40.2; 2005: 40.3; 2006: 41.4; Average: 39.1. - Interest expenditures: 1996: 1.2; 1997: 1.1; 1998: 1.1; 1999: 0.9; 2000: 1.0; 2001: 0.9; 2002: 0.6; 2003: 0.8; 2004: 1.1; 2005: 0.9; 2006: 1.1; Average: 1.0. - Overall balance (percent of GDP): 1996: -2.0; 1997: -1.2; 1998: -1.3; 1999: -3.1; 2000: -3.2; 2001: -2.7; 2002: -3.9; 2003: -4.8; 2004: -3.3; 2005: -2.1; 2006: -3.7; Average: -2.8. - Primary balance (percent of GDP): 1996: -0.8; 1997: -0.1; 1998: -0.2; 1999: -2.2; 2000: -2.2; 2001: -1.9; 2002: -3.2; 2003: -4.0; 2004: -2.2; 2005: -1.2; 2006: -2.6; Average: -1.9. - Change in primary balance (percent of GDP): 1996: 0.7; 1997: -0.1; 1998: -2.0; 1999: 0.0; 2000: 0.4; 2001: -1.4; 2002: -0.8; 2003: 1.9; 2004: 1.0; 2005: -1.4. - Structural balance (elasticity = 0.94) highlights (1996–2006): - Structural primary balance (percent of GDP): 1996: -1.0; 1997: 0.5; 1998: 1.2; 1999: -0.7; 2000: -0.9; 2001: -0.6; 2002: -1.6; 2003: -2.4; 2004: -0.7; 2005: -0.1; 2006: -2.3; Average: -0.8. - Automatic stabilizers and discretionary policy (change in actual primary balance components): - Change in actual primary balance (percent of GDP): same series as earlier change values; average: -0.2. - Automatic stabilizers (percent of GDP): 1996: -0.7; 1997: -0.8; 1998: -0.2; 1999: 0.2; 2000: 0.0; 2001: -0.4; 2002: 0.1; 2003: 0.2; 2004: 0.4; 2005: 0.8; average: -0.1. - Discretionary fiscal policy (percent of GDP): 1996: 1.5; 1997: 0.7; 1998: -1.8; 1999: -0.3; 2000: 0.3; 2001: -0.9; 2002: -0.9; 2003: 1.7; 2004: 0.6; 2005: -2.1; average: -0.1. - Fiscal impulse and stance: - Fiscal impulse 1 (positive implies loosening): 1996: -1.5; 1997: -0.7; 1998: 1.8; 1999: 0.3; 2000: -0.3; 2001: 0.9; 2002: 0.9; 2003: -1.7; 2004: -0.6; 2005: 2.1. - Fiscal stance 5/: 1996: -1.4; 1997: -2.3; 1998: -0.4; 1999: -0.1; 2000: -0.4; 2001: 0.5; 2002: 1.5; 2003: -0.2; 2004: -0.7; 2005: 1.4; average: -0.2. - Revenue stance and non-interest expenditure stance series provided in Table 1; Fiscal Impulse 2 series also provided. Notes from Table 1: - 1/ Excludes privatization financed net lending and transformation grants. - 2/ Automatic stabilizers calculated as the change in the difference between actual and structural revenues and expenditures. - 3/ Discretionary fiscal policy calculated as the difference between the change in the actual primary balance and automatic stabilizers. - 4/ Positive impulse implies loosening and negative number implies tightening. - 5/ Fiscal stance calculated as the difference between the "neutral" revenues and non-interest expenditures. ### Policy Implications and Recommendations (from Overview and Chapters) - Strengthen political commitment to adhere to the fiscal framework; without strong political will, new fiscal rules targeting the budget balance will not be effective. - Refine the medium term expenditure framework to improve flexibility and enforceability. - Prioritize expenditure reforms that enhance efficiency and budget flexibility: - Focus on healthcare and education spending for efficiency gains. - Improve targeting of existing social benefits to yield better outcomes in reducing poverty and inequality. - Recognize that additional social benefit spending will yield marginal gains; better targeting preferred. - Manage EU-funded investment demands: - Restructure expenditures to create room for growth-enhancing EU-funded projects. - Address absorption capacity constraints as implementation pace increases, which will place increasing demands on the budget. - Enhance public financial management and transparency: - Expand coverage of institutions and transactions in fiscal data. - Supplement source data to enhance consistency and comparability. - Implement GFSM 2001 recommendations to strengthen fiscal policy analysis and transparency. *Prepared by Anita Tuladhar; source: IMF staff report content summarized from the provided chapter.* ### 8. Addressing these challenges will require strong fiscal institutions to limit the ### 8. Addressing these challenges will require strong fiscal institutions to limit the deficit bias. Reversing the recent tendency to raise spending or cut taxes during favorable cyclical periods is key to avoiding procyclical fiscal policy. A countercyclical policy not only supports output stabilization, which will be increasingly important as the economy integrates with the eurozone, but also prevents a build up of high deficits and debt that could require a procyclical fiscal contraction. ### C. The Fiscal Framework and Emerging Pressures - The Czech fiscal framework was introduced in 2004. - No explicit fiscal rule for a budget balance; the framework requires the government to announce medium-term fiscal targets at the general and central government levels for two years subsequent to the budget year. - These targets have been consistent with the Convergence Program, which has sought to gradually lower the general government deficit to below 3 percent of GDP threshold under the Stability and Growth Pact. - Medium-term macroeconomic forecasts prepared by the Ministry of Finance are used to project nominal revenues; together with deficit targets these derive the nominal expenditure ceilings for the state budget and the state funds. - Expenditure targets are legally binding and can only be adjusted in specified cases; the medium-term expenditure framework is submitted with the state budget to Parliament. - Escape clauses exist for large deviations in CPI developments, EU financed programs, legal changes in budgetary allocation of taxes for decentralization, and extraordinary spending not projected when the framework was determined. - A margin of one percent for the budget year and two percent for the following year is allowed. - Any positive surprises such as windfall revenue gains are required to be used to lower deficits. - In the event of a breach of spending ceilings, no sanctions exist. Findings from implementation experience (past three years): - Lack of adherence to fiscal deficit targets: - Annual budgets for 2005 and 2006 respected preannounced medium-term deficit targets; the 2007 budget relaxed the deficit target significantly despite stronger than projected growth. - No medium term targets were announced for 2007. - The deficit increase was driven by a large mandatory social spending package approved ahead of the 2006 elections. - Revenue windfalls used to increase spending: - Spending ceilings have been repeatedly revised upwards in the face of strong revenue growth. - Upward revision in spending amounted to nearly ¾ percent of GDP in the 2006 budget and 1¾ percent of GDP in 2007. - Revenue surprises were used to lower within-year deficits but not the multiannual budget targets as required by the framework, leading to a procyclical stance. - GDP revisions and macro forecast error: - Forecasting revenues complicated by forecast errors in GDP projections, frequent revisions in the GDP series, structural changes following EU accession, and tax reform measures. - Coverage of the fiscal framework: - Extra budgetary funds and line ministries are allowed carryover of annual underspending in both current and capital budgets and can spend these in future years without Ministry of Finance limits. - At end-2005, budgetary reserves had accumulated to 1¾ percent of GDP reflecting persistent overbudgeting. - Spending from privatization account remains outside the spending ceiling. - Exclusions risk erosion of fiscal control by the Ministry of Finance. Selected macroforecast vs outcome figures (Table 2): - Growth in BudgetOutcome (labels in source): - Real GDP: 2.8, 4.2, 3.6, 6.1 (presented as multi-year values in source table). - Deflator: 2.7, 3.7, 3.1, 1.0. - Nominal GDP: 5.6, 7.9, 6.8, 7.1. - Fiscal Impulse: -0.6, -1.3, -1.4, -0.5. - (Source: Czech authorities; Table 2 in source). ### D. Key Considerations for Strengthening the Fiscal Framework Key questions posed: - What is the appropriate long-term budget deficit target? - Should the target be fixed in the form of a fiscal rule? - How can the current fiscal framework be strengthened as a commitment device towards achieving these targets? What is the appropriate long-term budget target? - Debt-stabilizing primary fiscal balance given by the debt dynamic equation d = (r − g) / (1 + g) * ... (equation in source; variables defined: pb = primary balance as percent of GDP; r = real interest rate; g = growth rate; d = debt to GDP ratio). - Czech Republic’s average primary balance at 2.5 percent over 2001-05 ranks among the highest in the new member states and exceeds the level needed to sustain the debt level of 26 percent of GDP at end-2005 (Table 3). - Even with optimistic medium-term growth and a higher target debt level of 30 percent of GDP, the debt-stabilizing deficit is below deficits projected under the 2005 Convergence Program and the medium-term budget. - Optimal target deficit is endogenous to the target level of debt. Debt-stabilizing primary balance scenarios (Table 3, values preserved): - Target debt level rows include: 26 30 40 40 50 60 60 (as presented in source). - Growth rate (in percent) scenarios: 3.7 4.6 5.0 3.0 5.0 3.0 5.0 3.0 (presented as groupings in source). - Real interest rate (in percent) 1/: 2.2 3.1 2.5 3.5 2.5 3.5 2.5 3.5. - Required primary balance (In percent of GDP): -0.4 -0.4 -1.0 0.2 -1.3 0.3 -1.5 0.3. - Actual primary balance: -2.5 -1.4 .............. (as presented). - (Source: Staff calculations; footnotes in source retained). Long-run considerations: - Higher investment spending to support faster growth during catching up with EU income levels justifies a golden rule where investment spending can be financed through debt. - Under optimistic scenario with 5 percent long-term growth, a primary deficit of 1.4 percent of GDP as projected in the medium-term plans would stabilize debt at around 55 percent of GDP. - After income convergence, deficit levels would need to be much lower to stabilize debt due to slower growth and higher interest burden. Market expectations and risks: - Market perceptions of unsustainable debt and lack of credible fiscal consolidation can cause investors to refuse to buy debt; vulnerability increases with output volatility and larger financing needs during growth slowdowns. - Cross-country data show debt levels are negatively related with output variability (Chart 9). - Using output volatility benchmark for European countries, a sustainable level of debt for the Czech Republic would be around 40 percent of GDP. - Refinancing risk for Czech state debt is relatively low with average time to maturity of 5.9 years. Motivation for debt reduction: - Main motivation is creating fiscal space for age-related spending pressures. - Over the next few decades, Czech Republic faces one of the largest demographic shifts among new member states. - Country has not yet reformed its pension and health care system; old-age income support and health care are almost entirely provided by the public sector. - Long-term debt sustainability analysis projects age-related spending would rise by nearly 7 percent of GDP by 2050 leading to unsustainable debt dynamics. - To maintain debt within a 60 percent of GDP limit by 2050, a permanent fiscal adjustment of 6 percent of GDP is required which translates into a surplus of 2 percent of GDP. - If consolidation is delayed, the additional adjustment needed will increase by 1/3 percent of GDP every 2 years. - In absence of systemic pension and health care reforms, Czech Republic should seek to generate budget surpluses as reserves to pay for future spending needs. Recommended medium-term structural target: - Target of a structural balance or a small surplus by early next decade appears appropriate. - This would require a sustained reduction in the structural balance of at least ½ percent of GDP annually starting from a 3 percent structural deficit in 2007 and reaching structural balance by 2013. - This target allows a cyclical margin below the Maastricht requirement of 3 percent of GDP. - Historical largest negative output gap was 4½ percent in 2002; semi-elasticity of budget to output gap estimated at 0.39 implies cyclical fluctuation of 1¾ percent, below 3 percent threshold under the Stability and Growth Pact, providing a margin for forecast errors. Should the deficit targets be fixed in the form of a fiscal rule? - The current ‘soft’ approach highlights tradeoffs between commitment to long-run fiscal goals and short-term flexibility. - Flexible deficit targets allow short-term discretion but can be misused, especially during cyclical upswings, producing procyclical bias. - Loss of fiscal discipline and history of procyclical fiscal policy argue for institutional mechanisms to ensure stronger fiscal commitment. - A budget balance rule, as a permanent deficit target, would directly address the deficit bias and help limit spending bias arising from a ‘common pool’ problem in fragmented political systems with coalitions and ‘commitment’ budgeting. *Source: _cr0785 - 8. Addressing these challenges will require strong fiscal institutions to limit the (PDF chapter/section).* ### introduction of budget balance rules, although these findings may be subject to endogeneity ### _cr0785 - introduction of budget balance rules, although these findings may be subject to endogeneity ### Fiscal rules: benefits, drawbacks, and interpretation challenges - Fiscal rules can reinforce discipline but may be subject to endogeneity bias that complicates causality assessment. - Potential drawbacks of rigid annual deficit targets: - Can introduce a procyclical bias. - May lead to poor quality of fiscal adjustment if expenditure cuts disproportionately affect more productive areas that are easier to cut. - In the case of a ‘golden rule’ that excludes capital spending, there may be creative accounting (e.g., reclassification of spending from current to capital items). - Circumvention methods include off-budget government operations and changing cash-accrual adjustments if targets are in accrual terms. - Practices at the general government level: - Fiscal balance rules are less frequent or applied with more flexibility (multi-year horizon, cyclical margins, escape clauses for periods of low growth). - Annual budget balance rules are more prevalent at local government levels, especially in “delegation” budget formulations where the Finance Ministry is delegated responsibility and held accountable for overall fiscal performance. - Experience with a budget balance rule as a percent of GDP supporting an expenditure rule: - Some countries (Denmark, Finland, Sweden) use a permanent constraint basis from which expenditure ceilings are derived. - Multi-year application yields variations in interpretation, complicating setting of expenditure ceilings and performance monitoring. - Structural targets are challenging for transition economies because cyclical adjustment is more uncertain. ### Enforcement, sanctions, and political commitment - Without political commitment, enforcing any fiscal rule is difficult. - Sanctions practices: - More commonly applied at local government level: withholding of transfers, credit restriction, fines, and sometimes personal sanctions aimed at responsible officials. - At general government level, sanctions are more reputational than judicial. - Adoption of fiscal rules often reflects underlying social preferences for fiscal adjustment; political commitment is a precondition for implementation. - A numerical fiscal balance rule would not guarantee compliance but would highlight fiscal discipline and increase reputational costs of deviation. - Suggested institutional/design features to improve enforceability: - Specify deficit targets of Convergence Programs in coalition agreements to increase transparency and public scrutiny. - Require any tax or mandatory spending measures that deviate from targets to be budget neutral (analogous to the US Budget Enforcement Act). - Strengthen legal foundations to make spending ceilings legally binding at a disaggregated level of budgetary chapters. - Require government plans to offset overspending within a certain time horizon where overspending occurs. ### Strengthening the expenditure framework and monitoring - Independent fiscal institutions can limit time-inconsistent policymaker behavior; roles vary by country from macroeconomic forecasts to independent monitoring and normative statements on adherence to rules. - In the Czech Republic: - Macroforecasts used by the Ministry of Finance have been on the conservative side (MFCR, 2005a). - An institutional mechanism allowing independent assumptions (e.g., on whether revenue increases are structural) and monitoring of budget plans could strengthen credibility. - Transparency and monitoring improvements: - Broaden coverage of central government institutions under expenditure ceilings to prevent circumvention via reserve funds accumulated by line ministries. - Limit the extent of rollover of budgetary allocations and drawdowns; tie carryover reserve spending to efficiency outcomes. - Increase transparency on tax expenditures via annual reports to prevent circumvention of spending ceilings. - Review budgetary rules and procedures at implementation and expenditure management levels. ### Specific exclusions, contingency margins, and technical design choices - Categories that could be removed from expenditure ceilings to facilitate adherence: - Interest expenditure (common practice; increasingly relevant with rising interest rates and debt stock). - Pensions and cyclical items such as unemployment benefits (if excluded, a separate rule for pensions is needed). - Public investment spending (sometimes excluded to avoid cutting desirable investments; EU-financed spending excluded from Czech spending ceilings). Note critique: returns on public investment do not necessarily exceed the cost of borrowing; capital/current distinction not always clear. - Unpredictable items such as guarantee payments (Czech methodology limits new guarantees to 40 percent of annual expenditures). - Proposal: payments for guarantees deemed high risk be put into reserves at issuance; guarantee fund should serve as a reserve to fund future guarantee payments rather than as a short-term payments fund. - To avoid excessive rigidity of binding multiyear ceilings: - Consider a cyclical contingency margin. - Risk: margins may be fully used in downturns and not adjusted in upturns; suggestion to set spending ceilings at central values consistent with potential growth and desired structural adjustment while allowing margins for overruns or savings depending on output deviations from trend. ### Local governments, debt rule, and pension prefunding - Current local government rule: debt rule limiting debt servicing to 30 percent of revenues. - Local government debt is low and stable. - Devolution of responsibilities (education, healthcare, social care, EU-funded projects) to regional governments increases future risks. - Consider a balanced budget rule for regional governments. - Sanctions on municipalities for breaches in the debt rule are weak and could be strengthened. - Revise the debt servicing rule to exclude debt repayments under the definition of “debt servicing” to avoid disincentives for earlier debt repayments and tendencies toward longer-term borrowing (OECD, 2006). - Pensions: - A separate spending ceiling covers extra-budgetary funds, but state pensions remain within the state budget. - Assuming pension spending is contained, state pensions are expected to run a surplus in the near-term due to an upward revision in the contribution rate and the gradual extension of the statutory retirement age. - Preserving pension surpluses in a separate account could be considered to prefund aging-related costs. ### Empirical context and concluding remarks - Recent erosion of fiscal discipline: - Over the past decade, discretionary policy led to a steady rise in deficit and debt in the Czech Republic. - Introduction of a fiscal framework with multi-year expenditure ceilings helped reverse the trend, but strong revenue growth and populist pressures led to abandonment of medium-term targets and spending ceilings. - Policy objective and recommendations: - Fiscal policy should aim for gradual adjustment to a structural balance or a surplus early in the next decade if systemic pension and healthcare reforms are not implemented. - Integrate long-run sustainability targets more prominently into the fiscal framework. - Recognize that fiscal rules alone will not ensure compliance without political commitment. - Focus on strengthening expenditure framework design through greater flexibility, independent monitoring, enhanced public debate, and sanctions to enforce the framework. *Source: IMF.* ### Appendix I. Cyclical Stance of the Czech Budget: Estimation Methodology ### Appendix I. Cyclical Stance of the Czech Budget: Estimation Methodology ### Estimation approach (three steps) - Following Hagemann (1999), the structural budget balance is estimated using a three-step approach consistent with World Economic Outlook calculations: - (i) estimation of the underlying potential output and the associated output gap; - (ii) quantification of the cyclical expenditures and revenues; - (iii) subtraction of the cyclical components from the observed levels. ### Potential output and output gap (production function approach) - Potential output is estimated using the production function approach (Cobb Douglas) where output is a function of capital, labor and total factor productivity. Potential output is the level of GDP at which: - labor input is consistent with the natural rate of unemployment and - total factor productivity is at the trend level given normal levels of capital utilization. - For the Czech Republic, an average of two estimates is used: one assuming a varying scrap rate and the other with a fixed rate of depreciation. - Main assumptions: - Labor: structural unemployment level estimated, smoothed labor participation series, and demographic data on working age population. - Capital: capital stock estimated using investment data from national accounts and assumes varying scrap rate for the ‘old’ and ‘new’ sectors. - Total factor productivity: a trend growth in total factor productivity is estimated based on historical experience. - Alternative method: HP-filter (method used by the European Commission). - Estimates of Potential Output Growth under Alternative Methodologies (as presented): - Production function (IMF) 1.52 2.82 3.58 - Combination of production function and filtering (OECD) 2.23 2.78 3.84 - HP-filter (EC) 1.50 2.06 3.40 - Sources: AMECO, OECD database, staff estimates. ### Quantification of cyclical revenues and expenditures - Concept: - The budget balance comprises structural and cyclical components. - Structural budget is interpreted as the discretionary policy component; cyclical budget reflects automatic stabilizers. - Much of the cyclical effect emerges from the revenue side. - Cyclical revenues: - Calculated using tax revenue elasticities estimated by Girouard and Andre (2005) for personal income taxes, corporate income taxes, social security taxes and indirect taxes. - An aggregate revenue elasticity, ε, is computed using the share of each revenue in total current revenue as of 2005. - Revenue Elasticity Estimates (as presented): - Tax elasticity: - Personal Income Tax 1.19 - Social Security Contributions 0.80 - Corporate Income Tax 1.39 - Indirect Tax 1.00 - Share of current revenues: - Personal Income Tax 0.13 - Social Security Contributions 0.37 - Corporate Income Tax 0.13 - Indirect Tax 0.31 - Total tax revenue elasticity 0.94 - Source: OECD. - Structural revenues (notation and adjustment): - Structural revenues, t s R , are the revenues obtained after adjusting for cyclical revenues from actual revenues. - Capital revenues are assumed largely structural (dividends from public enterprises). - The structural component of current revenues is computed by adjusting observed current revenues by the amount of the output gap, t Y Y * , and the elasticity of revenues to the output gap, ε, while taking into consideration the impact of a collection delay on taxes (elasticity on previous years’ output gap). - Expressed in the source as: - capital t lagged t t t t current t s R Y Y Y Y RR+ ⎟⎟⎠⎞⎜⎜⎝⎛⎟⎟⎠⎞⎜⎜⎝⎛= − − εε 1 * 1 * , .. - For the Czech Republic all tax revenues are assumed to be collected in the concurrent year; consequently lagged ε is set to be zero. - Cyclical expenditures: - On the expenditure side only unemployment insurance benefits, t UB , are considered cyclically sensitive. - These are adjusted for the variation in the cyclical component of unemployment, )/( t n t URUR , as computed for output gap estimations. - Structural expenditures, t s E , are estimated as: - ))/(*()(. ,t n t t t t s URURUBUBEE+−= ### Structural budget balance and fiscal impulse - Structural budget balance: - The structural budget balance, t SBB , is derived as: - tstst ERSBB , , −= - This is taken as a measure of the discretionary component of the budget; the cyclical budget is the automatic stabilizer component. - Fiscal impulse: - To measure the impact of the budget on the economy, the fiscal impulse is measured as the change in the structural budget balance: - Impulse = 1− − tt SBBSBB - It is also common practice to measure the fiscal impulse as the change in the primary structural budget balance, since the interest component is not directly under the control of policymakers. *Italic line: Appendix I. Cyclical Stance of the Czech Budget: Estimation Methodology (from _cr0785 - Appendix I. Cyclical Stance of the Czech Budget: Estimation Methodology)_* ### 9. We attempt to quantify the magnitude of potential inefficiencies in the Czech ### _cr0785 - 9. We attempt to quantify the magnitude of potential inefficiencies in the Czech ### Data Envelope Analysis (DEA) — diagnostic technique - Efficiency is assessed using a cross-country approach that measures the effectiveness of spending in producing desired results through Data Envelope Analysis (DEA). - DEA generates a convex piecewise linear frontier of input-output combinations; countries on the frontier are relatively efficient, those below are relatively inefficient. - Input-based technical efficiency scores range between zero and one and correspond to the proportional reduction in spending consistent with relatively efficient production of a given output. - Output-based technical efficiency scores can be calculated as ratios consistent with potential increases in outcomes; output-based scores of one correspond to relatively efficient countries operating on the frontier (scores exceeding one imply spending could achieve better output performance). - This chapter focuses on input-based efficiency scores in line with the medium-term policy focus on expenditure rationalization. - Caveats highlighted: - Sample selection sensitivity and measurement error. - Difficulty incorporating unquantified spending attributes (e.g., quality of spending). - Need to evaluate inputs against policy-targeted performance indicators. - Bias from differences in private spending across countries. - Influence of exogenous factors beyond policymakers’ control. ### Adjusting expenditure inputs for purchasing power parity (PPP) - Real GDP per capita is closely related to public spending on health, education and social protection transfers; spending inputs in the DEA models are adjusted into internationally comparable PPP terms. ### Country sample and data sources - Sample comprises the NMS, the EU-15, OECD countries, Bulgaria, Romania, Ukraine, and Russia; specific model samples depend on data availability with outliers eliminated. - Spending data sources: Eurostat, OECD, WHO, UNESCO, World Bank World Development Indicators. - Indicators used: - Health: standardized mortality rates, health workforce density, number of hospital beds (WHO). - Education: pupil-teacher ratios, ratios of graduates to school-age population, PISA mathematics scores. - Social protection transfers: poverty and inequality indices (OECD). ### Relative efficiency results and policy implications — Social protection transfers - Findings: - The Czech Republic operates on the efficient frontier in a sample of 23 countries in reducing poverty risk after social transfers. - The efficient frontier is highly concave, implying additional social protection spending could be subject to sharply diminishing returns. - The Czech system is relatively efficient in reducing income inequality after transfers in a sample of 21 countries, though potential gains from higher spending exhibit diminishing returns. - Child allowances in 2003 covered 19.2 percent of the population compared to about 13.8 percent on average in the NMS countries. - About 4 percent of the Czech population receives social welfare assistance compared to about 3 percent in the average of NMS countries. - 2007 budget measures and fiscal impacts (explicit figures preserved): - Parental benefit allowance: increased parental benefit to 40 percent of the average wage; approximate cost CZK 15 billion (0.4 percent of GDP). The parental benefit is not means tested. - Birth allowance: increased at a cost of CZK 1 billion (under 0.1 percent of GDP); not means tested. - Benefit for parents of first grade students: new, modest cost, not means tested. - Housing allowance: estimated fiscal impact CZK 3 billion (0.1 percent of GDP); aims to assist households spending more than 30-35 percent of income on housing; supplementary housing benefit administered by municipalities on a case-by-case basis. - Contribution for elderly care: estimated cost CZK 6.5 billion (0.2 percent of GDP); meets up to two thirds of elderly care costs with flexible arrangements. - Sickness insurance reform and employer payroll contributions: planned reduction from 3.3 to 2.3 percent of covered wages budget neutral, but Parliament phased in a lower employer contribution rate of 1.4 percent by 2009; net fiscal cost estimated at about CZK 12 billion (0.4 percent of GDP). - Policy implications and recommendations: - Because many 2007 measures are weakly targeted to income, additional spending may not significantly influence desired social outcomes. - Future reforms should focus on strengthening targeting of social benefits, especially programs affected by the 2007 increase in mandatory spending. - Consider enhancing targeting of benefits linked to the Minimum Living Standard (MLS) given periodic realignments raise benefits of all beneficiaries regardless of household income. ### Relative efficiency results and policy implications — Health care - Findings: - Health delivery inefficiencies are more pronounced in the Czech Republic compared to similar countries. - In terms of health workforce density, the same workforce density could be achieved with about 70 percent less spending if the Czech Republic operated on the efficient frontier; Czech Republic ranks 15th out of 28 countries in the sample. - Excluding potential outliers (Ukraine, Russia, Norway, Finland) yields a more realistic efficiency score for the Czech Republic of about 0.6. - In reducing standardized mortality rates: Czech Republic ranks 18th out of 22 countries with a score of 0.4. - In promoting healthy life expectancy: Czech Republic ranks 15th out of 37 countries with a score of 0.6. - The Czech Republic has the lowest share of private healthcare spending among NMS countries (no numeric share provided). - Pharmaceutical spending accounts for 25 percent of the health budget compared to the OECD average of 15 percent. - About 20 percent of long-term hospital beds are dedicated to “social hospitalization” of elderly patients. - Drivers of strain: - Near universal coverage of basic healthcare benefits encourages excess demand. - Public insurers negotiate compensation rates with public providers, leaving little scope for private insurance or provision. - Modest use of co-payments to rationalize demand (except certain pharmaceuticals). - Weak link between average cost and rate of compensation for services weakens incentives to consolidate hospitals; hospitals cross-subsidize loss-making services with more profitable activities. - High regional number of hospital beds. - Policy implications and recommendations: - Introduce means-tested co-payments to increase the share of private spending and contain excess demand. - Pare down the wide coverage of publicly provided and insured services to allow greater scope for private sector provision. - Encourage greater private sector participation to increase competition between insurers and providers. - Investigate reasons for high pharmaceutical cost share and take steps to contain these costs (e.g., improving strategic purchases, increasing private co-payments). - Reform hospital financing to align compensation with expected average cost of service delivery. - Implement Diagnosis Related Groups (DRGs) over the medium term to help align payments and incentivize efficiency. ### Education - (Section ends at "Education" in the supplied content; no substantive education efficiency results or numeric findings provided in this excerpt.) * _cr0785 - 9. We attempt to quantify the magnitude of potential inefficiencies in the Czech ### 23. The Czech Republic performs well with respect to scores on international ### 23. The Czech Republic performs well with respect to scores on international ### Education: relative efficiency and concerns - The Czech Republic is relatively efficient in achieving high scores on the PISA test in mathematics in a sample of 25 countries. - Weaker results on key output indicators: - Relative efficiency score for pupil-teacher ratio: 0.7 (input: primary education spending per capita expressed as a share of GDP per capita). - Relative efficiency score for producing high ratios of secondary graduates relative to the school-age population: 0.8. - Relative efficiency score for producing high ratios of tertiary graduates relative to the school-age population: 0.6. - Issues that could affect efficiency: - Relative weakness in “soft skills” compared to strength in testable “hard skills” such as mathematics. - Local governments may not be providing adequate capacity for pre-university secondary schools despite growing student demand. - An excess supply of vocational schools oriented towards traditional industries, risking a mismatch in supply and demand for skills as production shifts towards higher value-added products. - Policy recommendations for education: - Increase cost recovery of pre-primary expenses and tertiary tuition fees. - Consider student loan programs and subsidizing pre-primary child care on a means tested basis to address impacts on vulnerable households. - Introduce performance-based budgeting on a pilot basis in education to tighten the link between spending appropriations and anticipated results. - Address regional mismatches in secondary education supply, especially for pre-university streams. ### Flexibility of public spending: assessment and shortcomings - Flexibility defined as scope to adjust expenditure to address new priorities or eliminate inefficiencies over one or two fiscal years. - High share of mandatory (non-discretionary) spending has constrained flexibility over time: - The share of non-discretionary spending is higher than the average of NMS, mainly owing to higher social benefits that offset lower employee compensation. - The relatively low coefficient of variation during 1995-2005 supports this association. - Higher mandatory social benefits in the 2007 budget are likely to exacerbate the rigid composition of expenditure. - Indicators used to measure flexibility include: - Coefficient of variation over the 1995-2005 period. - Share of expenditure adjustment over 1995-2005 that has been in non-discretionary areas. - Average level of spending as a share of GDP in 2005. - Average share of discretionary spending in 2005. - Findings: - The Czech Republic has not materially reduced non-discretionary expenditure since 1996, contrasting with other NMS countries. - Observed coefficient of variation over 1995-2005 is somewhat lower than the averages of the NMS and EU-15 countries. - Measures of potential flexibility (spending level and share discretionary) are broadly equivalent in the Czech Republic, NMS and EU-15. ### Enhancing flexibility: recommended reforms - Contain growth in mandatory social entitlements: - Review indexation rules to contain pace of spending growth (example: parental benefits linked to average wages rather than inflation adds expenditure pressure if nominal wages grow faster than the revenue base). - Pension benefits are partially indexed to average real wage growth. - Broad coverage and wide eligibility of social benefits reduces cyclical responsiveness of social spending. - Expand flexible work arrangements in the civil service: - Multi-year collective agreements and centralized personnel management constrain managers’ flexibility. - Effective job tenure and seniority-based promotion procedures constrain discretionary reallocation and increase wage-bill pressure as population ages. - Greater use of fixed-term work arrangements could help. - Review funding mechanisms for basic social services: - Incremental-cost budgeting hinders reallocation across competing budget users. - Introduce pilot projects for performance-based budgeting in key ministries, especially education and health. - Screen the formula governing transfers between levels of government for potential disincentives to consolidate small schools or healthcare facilities with high operating costs. ### Potential factors explaining relative efficiency scores - Methodological notes: - DEA is a diagnostic tool; limited sample size and the bounded nature of efficiency scores (0 to 1) complicate econometric analysis. - The paper focuses on simple correlation statistics rather than causal inference. - Key empirical associations: - Countries with high spending as a share of GDP are more strongly associated with relatively inefficient spending. - The correlation between efficiency scores and social spending shows a robust negative association of around 0.6 in almost every case between spending (both as a share of GDP and in real per-capita terms adjusted for PPP) and the efficiency score. - Possible explanations for negative association: - Policymakers in high spending countries may seek different outcomes than those included in the DEA models (e.g., expanded access to medical services may improve quality without reducing mortality rates). - Real GDP per capita is highly correlated with public spending; imperfect PPP adjustment could contribute to the association. - The association might also reflect waste in spending relative to other countries. - Health-sector specific factors: - Exogenous factors such as prevalence of alcohol and tobacco use, and dietary factors, can materially impact mortality rates and HALE. - Figure 12 shows an association between average alcohol use and efficiency scores based on reducing standardized mortality rate from all causes; the association appears weaker for tobacco or caloric intake. - Differences in public and private financing composition do not show a strong relation with efficiency scores. - Selected correlation statistics from Table 3 (spending vs. relative efficiency scores): - Health sector: - Std. mortality rate, all causes: spending (as percent of GDP) correlation = -0.5*, spending (real GDP per capita adjusted for PPP) correlation = -0.6*; Countries in sample = 21. - Healthy life expectancy: -0.6*, -0.6*; Countries in sample = 37. - Health workforce density: -0.6*, -0.5*; Countries in sample = 28. - Social protection: - At-risk-of-poverty: -0.1, -0.6*; Countries in sample = 22. - Inequality: -0.2, -0.6*; Countries in sample = 21. - Education: - Average PISA score: -0.5*, -0.6*; Countries in sample = 25. - Note: * Indicates statistically significant at the 5 percent level or better. - Additional figure data point: - In a scatter relating relative efficiency score in health to Alcohol Use (Liters per capita), R2 = 0.2. ### Conclusions and priority reform areas - Purpose of the analysis: - Apply DEA as a diagnostic tool to measure effectiveness of spending so expenditure-led fiscal adjustment can better focus on relatively inefficient areas rather than unsustainable cuts in traditionally flexible areas. - Ensure sufficient flexibility in public spending to eliminate inefficiencies and secure budgetary savings. - Main conclusions: - The increase in social benefits in the 2007 budget could be better designed to strengthen social outcomes: - Existing social protection transfers appear relatively efficient in reducing inequality in earnings and the risk of poverty after transfers, but the efficient frontier suggests limited scope to improve performance further. - The 2007 Budget increases are largely untargeted to household income, which could limit effectiveness; there should be room to identify savings in social benefits without jeopardizing social outcomes. - Strengthening efficiency of healthcare spending should be a priority given excess demand and supply adding financial strain: - Potential measures: trim excess bed capacity, reduce pharmaceutical costs, introduce means-tested co-payments. - Expand use of DRGs to link compensation with expected cost of service delivery as a sustained medium-term reform. - Education reforms should aim for greater cost recovery where public spending provides significant private benefits: - Options include larger out-of-pocket tuition fees and greater cost sharing of pre-primary childcare expenses. - Address supply shortfalls in secondary pre-university education to avoid future mismatches in skilled labor supply. - Enhancing flexibility of public spending requires sustained political commitment: - Target social spending to low-income households. - Expand flexible work arrangements in the civil service. - Identify and address rigid budgetary practices such as incremental-cost budgeting and potentially the funding formula for basic social services. *Source: IMF staff analysis as presented in the provided content unit.* ### Appendix I. Data Sources ### _cr0785 - Appendix I. Data Sources ### Data sources and performance indicators - Principal source for general government spending data (1995-2005) and nominal GDP: Eurostat’s Government Finance Statistics. - Performance indicators drawn from the World Bank’s World Development Indicators (WDI), including: - health workforce density per thousand people; - number of hospitals beds per thousand people; - pupil-teacher ratios; - graduates as a ratio of the school-age population. - Health outcomes obtained from the World Health Organization’s Core Health Indicators and World Health Statistic, including: - standardized mortality rates from all causes per 100,000 people; - healthy average life expectancy (HALE) in years. - Additional performance indicators from the OECD, including: - the Gini measure of income inequality; - the at-risk-of-poverty measure; - average scores on international standardized tests in mathematics (PISA). ### Absorption of EU funds: overview and principal findings - Increasing allocations of EU funds present opportunities and policy challenges for the Czech Republic’s economic catch-up and growth potential. - Key observations: - The Czech Republic received modest allocations for 2004-06 compared to other NMS, near close to 2 percent of GDP, with allocations set to rise considerably under the EU financial perspective 2007-13. - Structural and cohesion funds increased as a share of total allocations: less than ½ in 2004-06 rising to around ¾ in 2007-13. - EU funds finance nationally designed programs emphasizing basic infrastructure, human resources, and support to the productive environment. - Reasons actual net flows are significantly lower than gross commitments: - national contributions to the EU budget (annual payments at around one percent of GDP); - multi-year project cycles imply annual payments below commitments; - risk of de-commitment if projects are not prepared and implemented in a timely manner. ### Net transfers, absorption trends, and projections - Actual net transfers in 2004-06: amounted to 0.2-0.3 percent of GDP, slightly below original projections of 0.4 percent of GDP, mainly due to lower utilization of structural funds. - Net transfers projected to peak at close to 2 percent of GDP around 2011-13, conditional on absorption capacity. - Absorption timeline: - Initial slow absorption due to establishment of regulatory and institutional frameworks; low absorption at end-2005. - By late 2006, drawing of EU funds increased to levels comparable with regional peers as implementing agencies gained experience and many projects were contracted. - Program-level absorption: - Rural development funds outperformed human resource development programs (ESF). - No major funds were at risk in 2006; advance payments are included in absorption figures even if not yet spent. - Advance payments amounted to 16 percent of total allocations; 2004 commitments were 24 percent of the allocations. Thus, actual spending of only 8 percent was needed to formally comply with the N+2 rule at end-2006. - Future risks: - All 2004-06 structural funds must be spent by the end of 2008; a sharp increase in absorption challenges is expected, compounded by starting to draw funds under 2007-13. - Extrapolating current trends shows risk that some funds could be de-commissioned. ### Institutional and managerial challenges - The Czech Republic’s framework for managing EU funds is relatively disaggregated: - Large number of EU-financed programs with line ministries acting as managing authorities. - Institutional rigidities impede moving resources among programs. - Regional authorities will gain more control under 2007-13 while the number of programs increases—contrary to regional trend of limiting programs and creating strong central coordinating agencies. - Recommendation: Develop a coordinated framework for managing EU funds to improve utilization. ### Fiscal implications of EU transfers — measurement issues and direct impact - Measurement caveats: - Differences between cash and accrual (ESA95) statistics due to sector coverage and time of recording: - Sector coverage—ESA95 includes only transfers to government beneficiaries; cash statistics may include transfers to non-government intermediated by government agencies. - Time of recording—ESA95 records spending with automatic revenue counterpart (neutral for fiscal balance); cash statistics record spending and receipts depending on actual transaction timing (not deficit neutral). - Fiscal implications depend on whether EU transfers and related national co-financing expand new programs (expansionary) or substitute existing programs (no expansionary effect). Data on substitution are not directly available. - Simple accounting framework (first-round/direct impact) outlines: - Direct impact items: - Revenues: budget compensation (+), refundable EU programs (+). - Expenditures: contribution to EU (-), refundable EU programs (-). - Indirect impact items: - Domestic co-financing (-). - Substituted domestic spending (+). - Estimated direct fiscal drag assuming no substitution: - Table 1 (ESA95 basis, in percent of GDP) - EU related revenue: 2004 = 0.6; 2005 = 0.5; 2006p = 0.5 - budget compensation: 2004 = 0.4; 2005 = 0.3; 2006p = 0.2 - refundable programs: 2004 = 0.2; 2005 = 0.2; 2006p = 0.3 - EU related expenditure: 2004 = 0.9; 2005 = 1.3; 2006p = 1.4 - contributions to EU budget: 2004 = 0.6; 2005 = 1.0; 2006p = 1.0 - refundable programs: 2004 = 0.2; 2005 = 0.2; 2006p = 0.3 - Net fiscal impact: 2004 = -0.3; 2005 = -0.7; 2006p = -0.8 - These estimates represent the maximum possible negative effect; actual impact would be lower to the extent of substitution between EU-financed and domestic programs. ### Policy challenges and fiscal management priorities - Reconciling full utilization of growing EU funds with meeting Maastricht criteria and fiscal consolidation requires addressing: - Co-financing: Growing funds increase pressure to find domestic co-financing; without offsets this pressures the deficit unless expenditure cuts are made elsewhere. - Fiscal management: Budgeting for EU funds has been too optimistic, leaving unused appropriations booked as reserve funds; large reserve funds may loosen fiscal discipline as they could be spent apart from the annual budget law. - Assessment of fiscal impulse: Increasing EU-financed spending may obscure the assessment of the fiscal impulse because grant revenues do not represent withdrawal of domestic demand; thus, higher EU-financed spending may be neutral for headline deficit but associated with an underlying positive fiscal stimulus. ### Presentation of fiscal data using GFSM 2001 — Czech pilot study: aims and findings - Context: - Executive Board seminar (November 16, 2005) agreed to pilot studies to incorporate the GFSM 2001 operating statement, integrated balance sheet, and cash statement in Article IV reports. - The Czech Republic was selected as a pilot country. - Advantages highlighted by the pilot study: - Broadening coverage of fiscal activities. - Proper recording of events associated with privatization (or nationalization) via an integrated statistical framework. - Using an integrated approach to improve source data for fiscal analyses. - Main conclusions: - Application of GFSM 2001 highlighted lack of comprehensiveness in institutional and transactional coverage in existing fiscal data compared with GFS manual guidelines. - Staff reports’ general government aggregates differ from EU reporting aggregates due to incomplete coverage in source data. - Improvements in government accounting systems and reporting formats would facilitate integrated and standardized presentation of general government data, reduce reliance on supplementary methods (surveys/questionnaires), and enable comparability across datasets and countries. - Institutional coverage issues identified: - The MOF general government account excludes operations of “semibudgetary” organizations, some state extrabudgetary institutions, and special funds (e.g., Czech Consolidation Agency and subsidiaries, Czech Collection Company, Railway Infrastructure administration, Public-private-partnership centre, public universities). - These excluded entities can generate their own revenue and borrow in their own name; MOF accounts record transactions with these institutions but do not include their fiscal activities in main balancing items. - Fiscal risks from these entities are not fully captured by MOF general government flow data; staff reports use high risk guarantees to indicate such risks but this does not fully substitute for integrated source data. *Source: _cr0785 - Appendix I. Data Sources* ### 7. While it is conceptually easy to identify the gaps in the coverage of general ### 7. While it is conceptually easy to identify the gaps in the coverage of general ### Coverage gaps and impact on fiscal data - Approximately a 5 percentage point difference exists between the general government debt reported by MOF and general government debt reported by CNSO in terms of the Maastricht criteria. - Lack of an integrated and complete set of data for all institutional units makes quantifying the impact on main balancing items very difficult. - Complex institutional arrangements, differences in the basis of recording, and lack of comprehensive source data complicate estimation procedures. - Multiple published data sets differ in institutional coverage and methodology: - State budgetary units: compiled according to the national legislative framework and bridged to GFSM 1986 for SDDS dissemination and used in EUR staff reports for Article IV. - A set bridged to GFSM 2001 from national sources for publication in the GFS Yearbook. - General government data compiled for national accounts and reported to Eurostat in accordance with ESA 95. ### National accounting and compilation practices (Box 2) - The Ministry of Finance prescribes classification and accounting rules for State Budget agencies and State Extrabudgetary Funds; these accounts are compiled on a cash-accounting basis. - Accounts of semi-budgetary organizations, health insurance organizations, and special funds use various degrees of accrual accounting; generally include profit-and-loss statements and balance sheets. - Accounting practices are not structured in accordance with internationally recognized standards such as GFSM 2001; the accounting system and framework for presentation are not standardized and do not support an integrated approach to fiscal analysis. - Bridge tables recast national data into GFSM 2001, but limitations in source data translate into data gaps in bridged GFSM 2001 data. - CNSO, as compiler of data submitted to Eurostat for EDP and EU reporting, must employ supplementary data collection methods because of lack of comprehensiveness and integration in the underlying accounting framework. ### Results of recasting to GFSM 2001 - Recasting to GFSM 2001 revealed a number of data deficiencies and methodological treatment issues; summary GFSM 2001 tables are presented in Attachment 1 (Tables 1–3). - Table 1 (Statement of Government Operations) is based on full coverage of general government and the ESA 95 accrual-based methodology; Tables 2 and 3 are based on limited coverage and cash data of MOF. - Reclassifications (EU resources; government transfers to households and non-profits; capital transfers) did not alter major trends in staff reports but changed magnitudes of certain key balances; offsetting changes in other revenue and expense categories kept main balancing items essentially unchanged. - The overall fiscal balance as presented in staff reports amounted to 3.6 percent of GDP, while the cash deficit in the Cash Statement was calculated at 3.3 percent of GDP (the difference being the impact of lending on the staff-report balancing item). - Bridging revealed lack of source data on the stock of nonfinancial and financial assets; lack of asset-stock data is particularly important in light of privatization initiatives. - Adjustments in staff reports present privatization proceeds as financing transactions, not as net lending; however, the impact is only reflected in cash receipts and there is no offsetting reduction in the recorded financial asset—GFSM 2001 indicates privatization is an exchange of one asset for another with no impact on net worth, demonstrable in a full balance sheet. - Policy lending treated as expense in traditional framework distorts fiscal balance; for example, in 2003 policy-related loans amounted to almost 1 percent of GDP. - GFSM 2001 consistently records lending and privatization as transactions in financial assets (shares and equity of public institutional units), which has no impact on net lending/borrowing. - GFSM 2001 highlights the current lack of data on stocks and “other flows” related to nonfinancial assets, including price and volume changes; such data facilitate asset management decisions and inform government investment decisions. ### Valuation and recording of liabilities and other economic flows - Liabilities as reported by the Czech authorities are valued according to the Maastricht criteria: gross debt at nominal value outstanding at end-period and consolidated within and between general government sectors; nominal value is equivalent to face value of the liability. - Outstanding balances on foreign loans are converted into national currency at the market exchange rate on the reporting date—evidenced by residual value between opening and closing balances in that category. - Influence of other price and volume changes on other asset and liability categories is not accounted for in current reporting; GFSM 2001 when fully applied indicates the impact of all price and volume changes on the stock of assets and liabilities. - Box 3 summarizes GFSM 2001 statements and core balances: Statement of Government Operations (accrual), Integrated Balance Sheet (net worth and other economic flows), and Statement of Sources and Uses of Cash (cash flows). ### Next steps and policy recommendations - Authorities broadly agreed to work toward improving compilation and presentation of fiscal data in the GFSM 2001 framework; no specific engagement benchmarks were agreed at the time. - Implementation of STA mission recommendations will be considered; authorities reiterated highest priority is compliance with EU reporting requirements. - Coverage of fiscal data should be improved to agree with coverage of data disseminated in the ESA 95 framework; full coverage of all units in general government is essential for reconciling MOF and CNSO data. - MOF is considering discontinuation of compilation and dissemination of GFSM 1986-based fiscal data due to limited resources; MOF staff prioritize dissemination in ESA 95 framework. Potential impact noted for Fund staff who rely on GFSM 1986 data. - Comprehensive fiscal analysis of general government liquidity and sustainability depends on availability of cash and accrual data respectively: - Authorities are strongly encouraged to develop MOF data to fully comply with reporting the Statement of Sources and Uses of Cash for comprehensive general government (i.e., continue improving classification and coverage). - Authorities need to continue developing accrual accounting to allow improvements to and dissemination of the Statement of Government Operations and other ESA 95-based reporting. - Full implementation of GFSM 2001 depends on additional accounting reforms; an integrated approach to improving source data systems is essential to facilitate compilation of GFS and provide improved source data for national accounts. - Improving coverage, basis of recording, valuation and recording of financial and nonfinancial assets depends on development and improvement of source data systems. ### Key statistics and selected figures (as presented) - Difference in reported general government debt: approximately a 5 percentage point difference (MOF vs CNSO, Maastricht criteria). - Overall fiscal balance (staff reports): 3.6 percent of GDP. - Cash deficit (Cash Statement): 3.3 percent of GDP. - Policy-related loans in 2003: amounted to almost 1 percent of GDP. - Table 1 (Statement of Government Operations) — net operating balance (million CZK): -110.0, -169.5, -180.8, -178.6, -74.6, -92.6 (years 2000–2005). - Table 1 — Net lending/borrowing (percent of GDP): -3.7, -5.7, -6.8, -6.6, -2.9, -3.6 (years 2000–2005). - Table 1 — Revenue (percent of GDP): 38.1, 38.7, 39.5, 40.7, 41.5, 40.4 (years 2000–2005). - Table 1 — Expense (percent of GDP): 43.1, 46.0, 46.9, 47.7, 44.2, 43.6 (years 2000–2005). - Table 3 — Cash surplus/deficit (million CZK): -87.1, -107.6, -153.1, -128.7, -97.7, -97.8 (years 2000–2005). - Table 3 — Net cash inflow (+) from operating activities (million CZK): -27.1, -45.5, -91.2, -63.1, -24.0, -29.1 (years 2000–2005). - Table 3 — Net cash inflow (+) from financing activities (million CZK): 80.7, 139.8, 175.8, 110.5, 114.6, 196.3 (years 2000–2005). - GDP at market prices (millions of koruny): 2189.2, 2352.2, 2464.4, 2577.1, 2781.1, 2970.3 (years 2000–2005). - Integrated Balance Sheet (selected items, indicating data gaps): nonfinancial assets and financial assets series show gaps and sign changes (e.g., Net Financial Worth: -153.1; -128.7; -97.7 in selected years). *Source: IMF staff report text and Tables 1–3 (GFSM 2001) as provided in the content unit.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0785.pdf_