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### Recent fiscal developments and drivers of 2014 fiscal relaxation
- General government deficit increased from 1.2 percent of GDP in 2013 to 2.0 percent in 2014, implying about a 1 percentage point deterioration in the cyclically-adjusted fiscal balance.
- Main contributors to the relaxation:
  - a negative surprise in excise collections,
  - an increase in capital spending.
- Statistical changes to comply with ESA2010 widened the headline deficit further, including the one-off inclusion of the Deposit Insurance Agency payout in 2014.

### Monetary policy stance and exchange rate tool
- Monetary policy has remained accommodative.
- In November 2013 the Czech National Bank (CNB) announced commitment “to prevent excessive appreciation of the koruna below CZK27 per € by intervening in the foreign exchange market.”
- The exchange rate floor (FX-floor):
  - Has been effective in fending off deflationary pressures.
  - The exchange rate has been hovering above CZK27 per € without official intervention since November 2013.
  - Was retroactively reclassified from other managed to stabilized effective November 19, 2013.
  - Gradual reserve accumulation during 2014–15 is due to EU funds and other fiscal inflows.
- Outlook and policy guidance:
  - Inflation expected to rise toward the central bank’s target in the second half of 2016, facilitating an exit from the exchange rate floor.
  - Given the gradual closing of the output gap and asymmetric risks at the zero lower bound, monetary policy will likely need to remain supportive for some time even after abolishment of the exchange rate floor and return to a floating exchange rate.
  - CNB tools to counter unintended tightening after exit include discretionary interventions; modestly negative policy interest rates could be considered to discourage capital inflows but deeply negative rates risk cash hoarding and reduced financial intermediation.
  - Scope for purchases of domestic assets is very limited given ample liquidity, very low domestic yields, and limited availability of domestic assets.

### Financial sector resilience, risks, and supervisory reforms
- Banking sector strength and trends:
  - Czech banks are self-financed with a low system-wide loan-to-deposit ratio and strong capital and liquidity buffers.
  - Non-performing loan (NPL) ratio increased slightly to 5.6 percent last year but remains low.
  - Credit growth accelerated to 3½ percent y-o-y in April, driven by a pickup in corporate-sector demand; household credit growth remains robust.
  - Funding costs and bond yields: 10-year bond yield recently reached almost 1.2 percent compared with lows of 0.4 percent in April.
  - Five-year credit default swap rates have been steady at around 50 basis points.
  - Local bond market monthly turnover averages about CZK 8–12 billion, or 0.2-0.3 percent of GDP.
- Financial stability monitoring and stress tests:
  - CNB stress tests showed manageable system-wide capital shortfalls of just 0.4 percent of GDP; high initial capitalization averages 18 percent across the system.
  - Export bank losses linked to risk management and due diligence problems; authorities have taken measures to change management and strengthen controls.
- Regulatory and supervisory improvements:
  - Progress toward implementing the recommendations of the 2012 FSAP; increased supervisory resources for on-site inspections.
  - New law on credit unions: limits to their size, limits to deposit-interest ratio, limits to borrower eligibility, increased contributions to resolution and insurance funds.
  - CNB implemented macroprudential tools under CRR IV: across-the-board “conservation buffers” and a “systemic buffer” targeted at the largest banks.
  - Bank Recovery and Resolution Directive and Deposit Guarantee Schemes Directive expected to be transposed into local law soon.
  - Working group on Banking Union opted to stay out for now and to re-visit the issue on an annual basis.
- Authorities’ assessment: main risks seen as domestic economic conditions and external euro-area risks; conditional stance includes possible countercyclical macroprudential measures if credit growth accelerates faster than foreseen.

### Outlook: growth, inflation, labor market, external sector, and reserves
- Growth:
  - Real GDP: 2.0 percent in 2014; projected 3 percent in 2015.
  - Medium term: output growth set to stabilize at around 2¼ percent, with a period of faster growth possible driven by a strong pipeline of FDI.
  - Staff expects growth to accelerate to 3 percent in 2015; investment expected to be main driver.
- Inflation:
  - CPI (average): 0.4 percent in 2014; 0.2 percent projected for 2015; expected to rise toward target in 2016 as base effects fade and economic slack declines.
  - Headline inflation: 0.1 percent in 2015:Q1; 0.7 percent y-o-y in May (2015).
  - Core inflation: around 1 percent since mid-2014.
- Labor market:
  - Employment growth reached 1.3 percent y-o-y in 2015:Q1.
  - Unemployment rate declined to 5.7 percent (lowest since 2009:Q1); table shows 6.1 percent in 2014 and projected 5.4 percent in 2015.
- External sector and reserves:
  - Trade balance (goods and services): 6.9 percent of GDP in 2014; projected 7.9 percent in 2015.
  - Current account balance: 0.6 percent of GDP in 2014; projected 1.5 percent in 2015.
  - Gross international reserves: $54.5 billion in 2014; projected $51.7 billion in 2015.
  - Current account registered a 0.6 percent of GDP surplus in 2014 compared with a 0.5 percent deficit in 2013.
- Risks to outlook (broadly balanced):
  - Upside: larger-than-expected positive effects from lower oil prices, supportive macroeconomic policies, recovery in trade partners, and ECB quantitative easing.
  - Downside: faltering euro area recovery, low growth becoming self-reinforcing, escalation of geopolitical tensions, reemergence of sovereign stress in Europe, financial market turbulence generating safe-haven inflows and appreciation pressures absent the FX-floor.

### Fiscal stance, medium-term objective, debt dynamics, and DSA findings
- Authorities’ medium-term objective (MTO): a 1 percent of GDP structural deficit.
- Staff view:
  - Maintain a slightly accommodative fiscal stance in the current year given remaining output gap, low inflation, and monetary policy at the zero lower bound.
  - Begin modest and very gradual fiscal consolidation starting next year to align with the MTO.
  - Recommend anchoring the MTO in fiscal framework legislation including expenditure ceilings, a debt brake rule, and a fiscal council.
  - Scope to improve budget composition: increase capital spending to address infrastructure needs, offset by efficiency gains in current spending and improved revenue administration.
- Debt Sustainability Analysis (key findings):
  - Public debt declined to 43 percent of GDP in 2014 despite the fiscal relaxation.
  - If fiscal targets in the convergence program are met, public debt projected to decline to 39 percent of GDP over the medium term.
  - Gross financing needs projected to stay below 8 percent of GDP throughout the projection period.
  - Stress-test scenario (shock to real GDP growth): public debt would rise to 51 percent of GDP and gross financing needs to 12 percent of GDP by 2017; thereafter, debt declines to 50 percent of GDP and gross financing needs drop to 9 percent of GDP by 2020.
- DSA projected indicators (selected exact series):
  - Nominal gross public debt (percent of GDP): 2013: 33.1; 2014: 45.0; 2015: 42.6; 2016: 41.0; 2017: 40.6; 2018: 39.9; 2019: 39.3; 2020: 38.9 (final table entry shown as 38.5).
  - Public gross financing needs (percent of GDP): 2013: 3.0; 2014: 1.2; 2015: 2.0; 2016: 7.5; 2017: 7.8; 2018: 6.8; 2019: 7.1; 2020: 7.3 (final table entry shown as 7.1/7.15).
  - Real GDP growth (percent): 2013: 2.8; 2014: -0.7; 2015: 2.0; 2016: 3.0; 2017: 2.8; 2018: 2.6; 2019: 2.2; 2020: 2.2 (final table entry shown as 2.2).
  - Inflation (GDP deflator, percent): 2013: 1.4; 2014: 1.7; 2015: 2.4; 2016: 1.6; 2017: 1.8; 2018: 1.9; 2019: 2.0; 2020: 2.0.
  - Effective interest rate (percent): 2013: 3.9; 2014: 3.0; 2015: 3.1; 2016: 2.9; 2017: 2.7; 2018: 2.8; 2019: 3.0; 2020: 3.0 (final table entry shown as 3.2).
- Contribution to change in gross public sector debt (cumulative, percent of GDP): 2013: 1.8; 2014: 0.5; 2015: -2.5; 2016: -1.6; 2017: -0.5; 2018: -0.6; 2019: -0.6; 2020: -0.5; cumulative to 2020: -4.1.
- Identified debt-creating flows (cumulative, percent of GDP): 2013: 2.4; 2014: 2.2; 2015: 1.0; 2016: 0.4; 2017: -0.3; 2018: -0.5; 2019: -0.5; 2020: -0.4; cumulative to 2020: -1.7.
- Primary deficit (percent of GDP): 2013: 2.2; 2014: 0.1; 2015: 0.9; 2016: 1.1; 2017: 0.4; 2018: 0.1; 2019: 0.0; 2020: 0.0; cumulative to 2020: 1.7.

### Structural policies and reforms to raise potential growth
- Historical and projected potential growth:
  - Averaged 4.5 percent during 2000–07; fell to 0.9 percent during 2010–14.
  - Potential growth estimated at 1.4 percent for this year; projected to increase to 2.2 percent over the medium term as investment increases.
  - Projected level judged insufficient for rapid income convergence with other advanced European economies.
- Identified supply-side challenges:
  - Demographic headwinds: working age population declined 4.2 percent in the last five years.
  - Labor market participation remains low in segments: women with young children and low-skilled workers.
  - Skills mismatches and low investment in R&D hinder climbing the value-added chain.
- Staff recommendations (ambitious reform agenda):
  - Increase labor market participation among women with children and low-skilled workers:
    - Targeted policies: further progress in providing affordable childcare; raise effectiveness and scope of job search assistance and training services.
    - Authorities’ goal: raise overall participation from 70 percent to 75 percent by 2020.
  - Mitigate skills mismatches and upgrade skills:
    - Education and training for less-advantaged groups; improve apprenticeship programs; avoid selectivity of the education system.
  - Promote research and innovation; strengthen R&D and cooperation between business and research organizations.
  - Improve business environment: simplify tax compliance and other administrative procedures; implement anti-corruption action plan priorities on financial control, management of state-owned companies, and access to information.
  - Improve transport infrastructure and increase utilization of EU funds.
- Efficiency of public spending (health and education):
  - Health: recommendations include trim excess bed capacity; reduce pharmaceutical costs; introduce means-tested co-payments; soft gate-keeping; streamline provider networks; increase transparency of service delivery contracts.
  - Education: seek greater cost recovery where public spending provides significant private benefits; ensure supply of secondary education in regions facing rising demand.
- Labor market and fiscal interaction:
  - On current trends, labor force will shrink by around 10 percent by 2030.
  - OECD estimate: full convergence in participation rates by 2030 can increase Czech annual per capita growth rates by 0.8 percent, on average.
  - Female labor force participation specifics:
    - FLFPR increased by 4.6 percentage points during 2008–14, to 65.6 percent in 2014.
    - Employment of mothers with children under 3 was about 20 percent in 2008 and is the second lowest in the OECD.
    - Participation of women with primary education only is 27 percent.
    - Share of working-age women with tertiary degrees rose to 20 percent (from 12 percent in 2008), exhibiting a participation rate of 78 percent.

### Executive Board assessment and consolidated policy recommendations
- IMF assessment: Czech economy is growing strongly but faces challenges — inflation below target and potential growth below levels needed for rapid income convergence.
- Fiscal policy recommendations:
  - Maintain supportive stance this year; embark on modest and very gradual consolidation thereafter.
  - Embed the medium-term objective in comprehensive fiscal framework legislation (expenditure ceilings, debt brake rule, fiscal council).
  - Improve budget composition with higher capital spending and efficiency gains in current spending; enhance revenue administration.
- Monetary policy recommendations:
  - Continue focus on inflation targeting; maintain supportive conditions until deflation risks recede and inflation expectations become entrenched around the target.
  - Carefully consider timing and mechanics of normalization; monetary policy likely needs to remain supportive for some time after exit from the FX-floor.
- Financial sector recommendations:
  - Remain vigilant and ready to address risks to financial stability; pursue proactive supervision and further improvements in supervisory architecture including transposition of the Bank Recovery and Resolution Directive into domestic law.
- Structural reform priorities:
  - Increase labor market participation (women with children, low-skilled workers); mitigate skills mismatches; promote research and innovation; enhance apprenticeship programs; simplify tax compliance and administrative procedures; improve infrastructure.
- Consultation cycle recommendation:
  - Next Article IV consultation with the Czech Republic recommended on the standard 12-month cycle.

*IMF staff report for the 2015 Article IV consultation with the Czech Republic (Country Report No. 15/98).*

### 1.2 percent of GDP in 2013 to 2.0 percent in 2014, implying about a 1 percentage point easing in

### 1.2 percent of GDP in 2013 to 2.0 percent in 2014, implying about a 1 percentage point easing in the fiscal stance

### Recent developments and drivers of the 2014 fiscal relaxation
- General government deficit increased from 1.2 percent of GDP in 2013 to 2.0 percent in 2014, implying about a 1 percentage point deterioration in the cyclically-adjusted fiscal balance.
- The relaxation was mainly due to:
  - a negative surprise in excise collections, and
  - an increase in capital spending.
- Statistical changes to comply with ESA2010 methodology widened the headline deficit further, including the one-off inclusion of the Deposit Insurance Agency payout in 2014.

### Monetary policy stance and tools
- Monetary policy has remained accommodative.
- In November 2013, constrained by the zero lower bound and facing deflationary pressures, the Czech National Bank decided to use the exchange rate as an additional instrument for inflation targeting and announced its commitment “to prevent excessive appreciation of the koruna below CZK27 per € by intervening in the foreign exchange market”.
- The exchange rate has been hovering above that level without any official intervention in the foreign exchange market since November 2013.
- The exchange rate floor proved effective in fending off deflationary pressures; combined with recovering demand conditions, inflation is expected to rise toward the central bank’s target in the second half of 2016, facilitating an exit from the exchange rate floor.
- Given the gradual closing of the output gap and asymmetric risks at the zero lower bound, monetary policy will likely need to remain supportive for some time even after abolishment of the exchange rate floor and return to a floating exchange rate.

### Financial sector resilience and risks
- The banking sector is stable and credit growth shows signs of a recovery.
- Czech banks are self-financed with a low system-wide loan-to-deposit ratio and strong capital and liquidity buffers.
- Non-performing loan ratio increased slightly to 5.6 percent last year but remains low.
- Credit growth is slowly recovering, driven by demand from the corporate sector; recent lending surveys point to easing lending standards and gradually rising demand for credit.
- Funding costs have declined further.
- Continued vigilance is recommended to sustain financial stability; proactive supervision and further improvements in supervisory architecture are needed, including transposition of the Bank Recovery and Resolution Directive into domestic law.

### Outlook and key macroeconomic projections (selected)
- Growth:
  - Real GDP: 2.0 percent in 2014; projected 3 percent in 2015.
  - Medium term: output growth set to stabilize at around 2¼ percent, with a period of faster growth possible driven by a strong pipeline of FDI.
- Inflation:
  - CPI (average): 0.4 percent in 2014; 0.2 percent projected for 2015; expected to rise toward target in 2016 as base effects fade and economic slack declines.
  - Headline inflation: 0.1 percent in 2015:Q1; 0.7 percent y-o-y in May (2015).
  - Core inflation: around 1 percent since mid-2014.
- Labor market:
  - Employment growth reached 1.3 percent y-o-y in 2015:Q1.
  - Unemployment rate declined to 5.7 percent (lowest since 2009:Q1); table shows 6.1 percent in 2014 and projected 5.4 percent in 2015.
- External and reserves:
  - Trade balance (goods and services): 6.9 percent of GDP in 2014; projected 7.9 percent in 2015.
  - Current account balance: 0.6 percent of GDP in 2014; projected 1.5 percent in 2015.
  - Gross international reserves: $54.5 billion in 2014; projected $51.7 billion in 2015.

### Fiscal stance, medium-term objective, and composition
- Authorities’ medium-term objective: a 1 percent of GDP structural deficit.
- Staff view: maintain a slightly accommodative fiscal stance in the current year given remaining output gap, low inflation, and monetary policy at the zero lower bound; begin modest and very gradual fiscal consolidation starting next year to align with the medium-term objective.
- Recommendation to anchor the medium-term objective in fiscal framework legislation that would include:
  - expenditure ceilings,
  - a debt brake rule, and
  - a fiscal council.
- Scope to improve budget composition:
  - increase capital spending to address infrastructure needs,
  - offset by efficiency gains in current spending and improved revenue administration.

### Structural policies to raise potential growth
- An ambitious structural reform agenda is essential to lift potential growth, focusing on:
  - increasing labor market participation among women with children and low-skilled workers,
  - mitigating skills mismatches,
  - promoting research and innovation,
  - enhancing apprenticeship programs,
  - simplifying tax compliance and other administrative procedures,
  - improving infrastructure.

### Executive Board assessment and policy recommendations (summarized)
- The Czech economy is growing strongly but faces challenges: inflation below target and potential growth below levels needed for rapid income convergence.
- Policy recommendations:
  - Fiscal policy: maintain supportive stance this year; embark on modest and very gradual consolidation thereafter; embed medium-term objective in comprehensive fiscal framework; improve budget composition with higher capital spending and efficiency gains.
  - Monetary policy: continue focus on inflation targeting; maintain supportive conditions until deflation risks recede and inflation expectations become entrenched around the target; carefully consider timing and mechanics of normalization.
  - Financial sector: remain vigilant and ready to address risks to financial stability.
  - Structural reforms: remove impediments to higher potential growth through labor market, human and physical capital, and business climate improvements.

*IMF staff report for the 2015 Article IV consultation with the Czech Republic*

### 7.      Monetary conditions remain accomodative. In November 2013, constrained by the zero

### 7.      Monetary conditions remain accomodative.

### Monetary policy and exchange rate policy
- In November 2013, constrained by the zero lower bound and facing deflationary pressures, the CNB decided to use the exchange rate as an additional instrument for inflation targeting and announced its commitment “to prevent excessive appreciation of the koruna below CZK27 per € by intervening in the foreign exchange market.”
- The exchange rate floor was considered preferable over purely quantitative easing through purchases of domestic financial assets given:
  - the ample excess liquidity in the banking system,
  - scarcity of private sector assets to purchase, and
  - shallowness of secondary government bond markets.
- The exchange rate has been hovering above the floor without any further intervention in the FX market since the CNB purchases of euro in November 2013, with some limited volatility around oil price declines and ECB’s quantitative easing.
- The de facto exchange rate arrangement was retroactively reclassified from other managed to stabilized effective November 19, 2013.
- The gradual reserve accumulation during 2014–15 is due to EU funds and other fiscal inflows.

### Banking sector, credit, and funding costs
- Banking sector stability and credit developments:
  - Czech banks are self-financed with a low system-wide loan-to-deposit ratio and strong capital and liquidity buffers.
  - Non-performing loan (NPL) ratio increased slightly to 5.6 percent last year, due to an increase in NPLs of the government-owned Export bank, but the ratio remains low.
  - Credit growth accelerated to 3½ percent y-o-y in April, on account of a pickup in corporate-sector demand, while household credit growth remains robust.
- Funding costs and market indicators:
  - Bond yields declined to historical lows earlier in 2015 before starting to rise in line with euro area trends: the 10-year bond yield recently reached almost 1.2 percent compared with lows of 0.4 percent in April.
  - Czech Republic is rated investment grade with a stable outlook.
  - Five-year credit default swap rates have been steady at around 50 basis points.
  - The local bond market monthly turnover averages about CZK 8–12 billion, or 0.2-0.3 percent of GDP.

### External sector and exchange rate assessment
- Current account:
  - The current account registered a 0.6 percent of GDP surplus in 2014 compared with a 0.5 percent deficit in 2013.
  - The trade balance improvement was driven by favorable terms-of-trade developments, notwithstanding strong import volume growth that outpaced that of exports.
  - The income deficit remained stable at around 6 percent of GDP.
- Staff assessment of exchange rate:
  - The real exchange rate is broadly in line with fundamentals.
  - The EBA methodology yields mixed results: current account balance-based approaches point to marginal undervaluation and the multilateral REER approach shows an overvaluation.
  - Other considerations point to the absence of evident imbalances in the external position or of significant shortcomings in non-price competitiveness indicators.
  - Overall, staff assesses the exchange rate to be in broad equilibrium.

### Outlook and risks
- Growth and inflation projections and assumptions:
  - Staff expects growth to accelerate to 3 percent in 2015.
  - Investment is expected to be the main driver of growth, supported by growing business confidence, higher capacity utilization and greater take-up of EU funds.
  - Private consumption is supported by the strength of the labor market and improved consumer confidence.
  - Net export contribution is projected to turn negative in 2015 as strong domestic demand boosts imports.
  - Inflation is likely to remain very low in 2015, before rising toward the target in 2016, as base effects from the oil price shock fade and declining economic slack starts to pull inflation up.
  - These projections assume the exchange rate floor remains in place through mid-2016, as the authorities have announced.
  - Over the medium term, output growth is set to stabilize at around 2¼ percent.
  - The current account is projected to remain in surplus, thanks to a lower oil import bill, before moving toward a small deficit on account of improving investment and in line with fundamentals.
- Risks (broadly balanced):
  - Upside: larger-than-expected positive effects from lower oil prices, supportive macroeconomic policies, an ongoing recovery in trade partners, and ECB quantitative easing.
  - Downside: a faltering euro area recovery affecting exports; low growth becoming self-reinforcing through low investment; escalation of geopolitical tensions in the region; reemergence of sovereign stress in Europe; financial market turbulance could generate safe-haven inflows contributing to appreciation pressures in the absence of the floor.

### Key macroeconomic indicators (as presented)
- Real GDP growth (percent)-0.72.03.02.82.62.22.22.2
- Inflation (period average, percent)1.40.40.21.32.02.02.02.0
- General government overall balance-1.2-2.0-2.0-1.3-1.0-0.9-0.9-1.0
- General government gross debt45.042.641.040.539.939.338.938.5
- Current account-0.50.61.51.00.50.2-0.1-0.4
- Reserves (in billions of euros)41.044.246.347.649.651.653.555.5
- Reserves (in billions of dollars)56.254.551.753.756.659.662.565.9
- Gross external debt63.466.663.461.360.760.560.560.3
- Sources: Czech authorities, and IMF staff projections

### Authorities’ views (summary)
- Broad agreement with staff on near-term outlook, medium-term prospects, and balance of risks.
- Emphasized stepped-up efforts to boost infrastructure spending, particularly EU-financed programs, and a strong pipeline of FDI.
- Downside risks seen as mostly external, including geopolitical tensions and possible renewed financial stress in the euro area (concern about developments in Greece), though direct banking exposure to Greece is very limited.
- Re-affirmed commitment to gradual fiscal consolidation and fiscal framework legislation; saw the 2015 expansionary fiscal stance as necessary to support recovery.
- Broad agreement with staff’s inflation outlook; monetary policy decisions becoming more data-dependent.
- Cautious regarding unconventional monetary policies (negative rates, domestic asset purchases) as relatively ineffective and prone to misinterpretation; saw little scope to advance euro adoption in this government’s term.

### Policy discussions and recommendations
- Fiscal policy and framework:
  - The 2015 fiscal stance is supportive of the recovery; authorities plan to keep the 2015 fiscal deficit just below 2 percent of GDP, implying a fiscal impulse of 0.6 percentage points.
  - The Convergence Program envisages gradual fiscal consolidation over 2016–18 aimed at reaching the medium-term objective (MTO) of a 1 percent of GDP structural deficit (from the projected 1.5 percent level in 2015).
  - Staff welcomed the authorities’ commitment to the MTO and recommended embedding the medium-term objective in a comprehensive framework.
  - The updated government proposal of the fiscal framework reform includes expenditure ceilings, a debt brake rule starting at 55 percent of GDP, and a fiscal council; timely adoption would help anchor fiscal policy.
  - Budget composition: staff argued for higher capital spending to address infrastructure needs offset by efficiency gains in current expenditure and improved revenue administration; recommended expansion of means testing and adherence to indexation rules for social benefits; welcomed enhanced tax administration measures (electronic VAT reporting and electronic cash registers) but advised conservative budgeted revenue gains.
- Monetary policy and inflation targeting:
  - Staff encouraged the CNB to maintain its focus on inflation targeting and to consider carefully the timing and mechanics of eventual normalization of monetary policy.
  - The policy rate has been at the zero lower bound since November 2012; authorities committed to maintain the exchange rate floor through 2016:H1.
  - The floor serves as a credible signal and insurance policy to achieve the inflation target; with current exchange rate broadly in line with fundamentals, little reason to expect large moves after exit.
  - Monetary policy likely needs to remain supportive even after abolishment of the exchange rate floor given gradual closing of the output gap and asymmetric risks at the zero lower bound.
  - CNB has tools to counter unintended tightening after exit, including discretionary interventions; modestly negative policy interest rates could be considered mainly to discourage capital inflows, but deeply negative rates risk cash hoarding and reduced financial intermediation.
  - Scope for purchases of domestic assets is very limited given ample liquidity, very low domestic yields, and limited availability of domestic assets.
- Financial stability:
  - Recent CNB stress tests incorporating severe scenarios showed manageable system-wide capital shortfalls of just 0.4 percent of GDP; high initial capitalization averages 18 percent across the system.
  - Profitability remains strong; direct exposures to Russia are limited.
  - Export bank losses appear linked to risk management and due diligence problems; authorities have taken measures to change management and strengthen controls.
  - Lending surveys point to easing lending standards and gradually rising demand for credit; credit growth likely to rise going forward given healthy balance sheets and signs of strong recovery.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 26.      The regulatory and supervisory framework is being improved in the context of local

### 26.      The regulatory and supervisory framework is being improved in the context of local

### Regulatory and Supervisory Improvements
- Continued progress toward implementing the recommendations of the 2012 FSAP.
- Increase in supervisory resources for on-site inspections.
- New law on credit unions introduced:
  - Limits to their size.
  - Limits to deposit-interest ratio.
  - Limits to borrower eligibility.
  - Increased contributions to resolution and insurance funds.
  - Other provisions aimed at reducing risks from this small part of the sector.
- CNB started implementing the macroprudential toolkit of the Capital Requirements Regulation IV by requiring:
  - Across-the-board “conservation buffers”.
  - A “systemic buffer” targeted at the largest banks.
- Bank Recovery and Resolution Directive and Deposit Guarantee Schemes Directive expected to be soon transposed into local law to:
  - Introduce new tools.
  - Harmonize resolution frameworks within the EU.
- Working group on Banking Union decision:
  - Opted for staying out of the Banking Union for now.
  - Decided to re-visit the issue on an annual basis.

### Authorities’ Views on Financial Sector Risks
- Authorities broadly shared staff’s assessment.
- Main risks seen as:
  - Domestic economic conditions (which have taken a turn for better in the last year).
  - Reduced risks of a debt deflation.
- Observed trends:
  - Nascent recovery in lending activity amid higher demand.
  - Positive asset quality trends.
  - Tightening interest rate margins.
  - Lower provisioning.
- Conditional policy stance:
  - Possibility of countercyclical macroprudential measures if credit growth turned out much faster than foreseen.
- External risks:
  - Euro area wide debt deflation viewed as the main worry.
  - Direct linkages between the Czech financial sector and developments in Greece and Russia seen as limited.

### D. Boosting Potential Growth — Assessment and Projections
- Historical and recent growth:
  - Averaged 4.5 percent during 2000–07.
  - Fell to 0.9 percent during 2010–14.
- Potential growth estimates and projection:
  - Potential growth is estimated at 1.4 percent for this year.
  - Projected to increase to 2.2 percent over the medium term as investment increases.
  - This projected level judged insufficient to facilitate fast convergence towards income levels of other advanced European economies.
- Supply-side challenges identified:
  - Demographic headwinds:
    - Working age population declined 4.2 percent in the last five years.
  - Labor market:
    - Progress made reducing rigidities (more flexible employment arrangements, strengthened public employment services, affordable high-quality childcare facilities).
    - Labor participation in some segments remains low — women with young children and low-skilled workers (Box 4 referenced).
  - Skills and innovation:
    - Skills mismatches and low investment in research and development (R&D) hinder moving up the value-added chain.

### Staff Recommendations for Raising Potential Growth
- Ambitious reform agenda to remove impediments to faster potential growth:
  - Address low labor participation to help achieve the authorities’ goal of raising overall participation from 70 percent to 75 percent by 2020.
    - Targeted policies: further progress in providing affordable childcare.
    - Raise effectiveness and scope of job search assistance and training services.
  - Upgrade skills and address skill shortages in high technology sectors:
    - Education and training for less-advantaged groups.
    - Improve apprenticeship programs.
    - Avoid selectivity of the education system.
  - Improve business environment:
    - Simplify tax compliance and other administrative procedures.
    - Implement priorities in the anti-corruption action plan on financial control, management of state-owned companies, and access to information.
  - Infrastructure and R&D:
    - Improve transport infrastructure.
    - Strengthen R&D.

### Authorities’ Views on Structural Reforms
- Authorities agreed further progress with structural reforms is needed to lift potential growth.
- Actions envisaged in the National Reform Program referenced.
- Measures highlighted to raise female labor participation:
  - Extension of availability of childcare facilities for longer time.
  - Tax relief for private childcare expenditures.
  - Establishment of a government fund to support new public kindergartens.
- Transport infrastructure prioritized:
  - Stepped up efforts to increase the utilization of EU funds.
  - Medium-term plans detailed in their Transport Policy.
- Support for innovation and start-ups:
  - Programs to strengthen cooperation between business and research organizations.
  - Support for the development of start-ups.
- Administrative burden reduction and anti-corruption measures:
  - Progress in reducing administrative burden.
  - Commitment to targeted anti-corruption measures included in the government legislative agenda for 2015.

### Staff Appraisal — Macro and Policy Priorities
- Economic outlook and challenges:
  - Czech economy growing strongly driven by robust exports and improving domestic demand supported by accommodative macroeconomic policies.
  - Labor market recovering with strong employment gains and real wage growth gradually picking up.
  - Disinflationary pressures have abated but inflation is still below the central bank’s target.
  - Potential growth well below the level necessary for fast convergence toward income levels of other advanced European countries.
- Fiscal policy:
  - Recommend maintaining a slightly accommodative fiscal stance this year due to remaining output gap, low inflation, and monetary policy at the zero lower bound.
  - Modest and very gradual fiscal consolidation necessary beginning next year to meet authorities’ commitment to a medium-term objective of a 1 percent of GDP structural deficit.
  - Recommendation to cast this objective in fiscal framework legislation including expenditure ceilings, a debt brake rule, and a fiscal council.
  - Scope to improve budget composition: increased capital spending to address infrastructure needs offset by efficiency gains in current spending and improved revenue administration.
- Monetary policy:
  - Central bank should continue to focus on inflation targeting.
  - Exchange rate floor effective in fending off deflationary pressures.
  - Inflation expected to rise toward the central bank’s target in the second half of 2016, facilitating an exit from the exchange rate floor.
  - Central bank should evaluate conditions for normalization of monetary policy and mechanics of implementation.
  - Given only gradual closing of the output gap and asymmetric risks at the zero lower bound, monetary policy likely needs to remain supportive for some time even after abolishment of the exchange rate floor and return to a floating exchange rate.
- Financial stability:
  - Continued vigilance required to sustain stability.
  - Banking sector characteristics:
    - Self-financed with low system-wide loan-to-deposit ratio.
    - Strong capital and liquidity buffers.
  - Supervision strengthened by:
    - Increasing supervisory resources.
    - Approving a new law on credit unions.
    - Starting to utilize the macroprudential toolkit of the Capital Requirements Regulation IV.
  - Need for proactive supervision and further gradual improvements, including transposition of the Bank Recovery and Resolution Directive into domestic law.
- Structural reforms:
  - Ambitious structural reform agenda essential to lift potential growth.
  - Key priorities reiterated:
    - Increase labor market participation among women with children and low-skilled workers.
    - Mitigate skills mismatches.
    - Promote research and innovation.
    - Enhance apprenticeship programs.
    - Simplify tax compliance and other administrative procedures.
    - Improve infrastructure.
- Consultation cycle recommendation:
  - It is recommended that the next Article IV consultation with the Czech Republic be held on the standard 12-month cycle.

*Source: IMF staff report excerpt (Country Report No. 15/98).*

### Box 3. Efficiency of Public Spending (continued)

### Box 3. Efficiency of Public Spending (continued)

### Health spending efficiency: findings and pressures
- Policies to contain both cost pressures and excess demand for health services are needed.
- Specific areas with potential efficiency gains:
  - Trim excess bed capacity.
  - Reduce pharmaceutical costs.
  - Introduce means-tested co-payments to contain growing pressure on the public healthcare system.
  - Introduce soft gate-keeping (e.g., requirement of referral from the general physician) to help manage demand.
  - Streamline providers’ networks.
  - Increase transparency of service delivery contracts.
- Comparative indicators referenced (OECD data points shown in charts):
  - Public Expenditure on Health (In percent of GDP, 2012) — country listings include Denmark, France, Germany, Japan, Austria, New Zealand 1/, ..., Czech Republic, ..., Mexico, Chile, Turkey, etc.
  - Life Expectancy (Years, total population at birth, 2012) — country ordering shown including Mexico up to Norway, Denmark, Chile.
  - Pharmaceutical Spending (In percent of total health expenditure, 2012) — country ordering shown including Mexico down to Czech Republic and Hungary.
  - Hospital Discharges, 2012 (Discharge rates by diagnostic categories, per 100,000 population).
  - Doctor Consultation (Number per capita) — comparisons for 2007 and 2012.
  - Infant Mortality Rate (Deaths per 1,000 live births).
  - Generalist and Specialist as a Share of all Doctors, 2011 (Percent).
  - Remuneration of Doctors, 2012 (Salaried income to economy-wide average wages).
  - Practicing Physicians, 2012 (Density per 1,000 population) — comparisons for 2012 and 2007.
  - Practicing Nurses to Practicing Physicians Ratio (Density per 1,000 population).

### Education spending efficiency: findings and challenges
- The education system appears efficient in delivering strong average scores on international standardized tests.
- Medium-term challenge: supplying appropriately skilled workers for a shifting labor market.
- Suggested reform directions:
  - Seek greater cost recovery in areas where public spending provides significant private benefits (for example, there could be room to increase out-of-pocket tuition fees).
  - Ensure supply of secondary education in some regions meets growing demand for pre-university educational streams to avoid mismatches in skilled labor supply and demand.
- Efficiency chart referenced:
  - Efficiency of Public Expenditure on Education (Average 2007-2011) 1/ versus Annual Spending per Student on Primary and Secondary Education (US$ PPP) — OECD country points plotted; note: 1/ Spending data is up to 2011, while the PISA scores refer to 2012.

### Czech Republic — context and labor market implications tied to spending priorities
- Demographics and participation:
  - On current trends, the labor force will shrink by around 10 percent by 2030.
  - The OECD estimates that full convergence in participation rates by 2030 can increase Czech annual per capita growth rates by 0.8 percent, on average.
- Female labor market participation (FLMP) specifics:
  - FLFPR increased by 4.6 percentage points during 2008–14, to 65.6 percent in 2014.
  - Employment of mothers with children under 3 was about 20 percent in 2008 and is the second lowest in the OECD.
  - Participation of women with primary education only is 27 percent.
  - Share of working-age women with tertiary degrees rose to 20 percent (from 12 percent in 2008), exhibiting a participation rate of 78 percent.
  - Participation rates of women with primary education have declined further during the period noted.
- Policy levers to raise FLMP relevant to spending and efficiency:
  - Expand flexible work options.
  - Address shortage of affordable child care — Czech Republic has the lowest share of formal childcare for children under three.
  - Target policies at lower education groups (where participation is lowest).
  - Measures already taken: tax relief for private child care expenditures by companies and individuals; establishment of a government fund to support new public kindergartens.

### Policy recommendations (summarized)
- Health sector:
  - Contain cost pressures via bed capacity rationalization, pharmaceutical cost reductions, means-tested co-payments.
  - Manage demand with soft gate-keeping and provider-network streamlining.
  - Increase transparency in service delivery contracting.
- Education sector:
  - Increase cost recovery where private benefits are substantial (e.g., out-of-pocket tuition fees).
  - Expand secondary/pre-university supply in regions facing rising demand to avoid skills mismatches.
- Labor market / fiscal interaction:
  - Implement policies (affordable childcare, flexible work arrangements) to raise female labor participation, especially among lower education groups, to bolster long-term growth and mitigate demographic pressures.

*Sources: OECD Education Database; OECD Health Statistics Database; OECD National Accounts Database; Author's calculations.*

### Box 4. Gender Gaps in the Labor Market (concluded)

### Box 4. Gender Gaps in the Labor Market (concluded)

### Educational attainment (Proportion of the Population with Tertiary Education)
- Data series: "Proportion of the Population with Tertiary Education, 2009 (24-35 years old)"
- Chart compares men and women across OECD and selected countries for the year 2009 and the age cohort 24–35 years.
- Source: European Comission, Eurostat, and OECD.

### Student performance by gender (PISA, Mean scores)
- Data series: "Student Performance by Gender, 2012 (Mean score PISA)"
- Subjects reported: Reading, Mathematics, Science.
- Comparators shown: Boys and Girls; Czech Republic and OECD average; year 2012.
- Source: European Comission, Eurostat, and OECD.

### Female labor force participation and gender pay gap
- Data series: "Female Labour Force Participation Rate, 2013 (Percent)"
  - Cross-country comparison of female labour force participation for year 2013.
- Data series: "Gender Pay Gap (Unadjusted, percent)"
  - Cross-country comparison of the unadjusted gender pay gap; year label shown as 2013 for related panels.
- Source: European Comission, Eurostat, and OECD.

### Representation of women in political and economic decision-making
- Data series: "Proportion of Women in Political and Economic Decision-Making: Board Members of Largest Publicly Listed Companies, 2013 (Percent)"
  - Cross-country comparison for year 2013.
- Data series: "Proportion of Women in Political and Economic Decision-Making: Cabinet, 2013 (Percent)"
  - Cross-country comparison of cabinet representation for year 2013.
- Source: European Comission, Eurostat, and OECD.

*Source: European Comission, Eurostat, and OECD (figures as presented in Box 4, IMF country report).*

### Appendix I. Background Note on Drivers of Disinflation

### Appendix I. Background Note on Drivers of Disinflation

### Trends
- Inflation across Europe declined sharply starting in 2012; at end-April 2015 the 12-month inflation is either zero or negative for the euro area (EA) and across all Central and Eastern European (CEE) countries outside the euro zone, except Romania.
- In the Czech Republic, inflation has been close to zero since December 2014.
- The synchronized disinflation points to common external causes, such as developments in shared trade partners or international commodity prices.
- Pass-through of external shocks to the overall price level is decomposed into:
  - First-round effects:
    - Changes in energy and unprocessed food prices and prices of other imported goods in consumer baskets.
    - Impact on other prices via the cost of inputs.
  - Second-round effects:
    - Impact channeled through inflation expectations via softening of contemporaneous demand and wage and price-setting behavior; in extreme cases this can trigger a deflationary spiral.

### Methodology and empirical approach
- Two-step analysis for the Czech Republic:
  - Apply panel coefficients from an updated open-economy, New Keynesian, Phillips curve for the CEE region (Iossifov and Podpiera (2014)) to Czech data; regression re-estimated with quarterly data for ten CEE countries over 2004–14; consider separately forward-looking expectations and autonomous inflation dynamics to break down external shocks into first- and second-round effects.
  - Estimate regression models of households’ and firms’ inflation expectations in CEE using data until the onset of disinflation in 2012; use out-of-sample forecasting performance to identify normal (fitted) reactions of expectations to oil prices and other external shocks and any overshooting (abnormally large negative residuals) signaling unanchoring of expectations.
- Note on administered prices: mostly energy products (electricity, gas, and heating) consumed by households, but also include healthcare.

### Decomposition of inflation variance (2012–14) — main findings
- First-round effects of lower commodity prices (captured by world food and energy prices and administered prices) account for the largest share of the inflation decline both in the Czech Republic and across other CEE inflation targeters.
- Disinflation spillovers from the euro area have been an important factor in the Czech Republic and other CEE inflation targeters, reflecting close trade links with the euro area and high import-content in domestic demand.
- Nominal effective exchange rates:
  - Played an important role in other CEE inflation targeters.
  - Did not play an important role in the Czech Republic when considering the entire 2012–14 period.
  - Contributed positively in the Czech Republic since the introduction of the FX-floor instrument by the Czech National Bank in November 2013.
- Changes in indirect taxes contributed sizably to easing domestic price pressures in the Czech Republic and to a lesser extent in other CEE inflation targeters, reflecting base effects from significant fiscal consolidation efforts across the region in 2011/12 to exit the EU’s Excessive Deficit Procedure.
- The domestic economic cycle, measured by the unemployment gap, had no measurable impact in the recent disinflationary episode.
- Second-round effects, as measured by the contribution of forward-looking inflation expectations, have not contributed to the post-2012 disinflation in the Czech Republic and account for 12 percent of the observed inflation variance across all CEE inflation targeters over the period.

### Inflation expectations and forecasting performance
- Out-of-sample forecasting performance of CEE-wide regressions for households’ and firms’ inflation expectations suggests the models cannot fully explain the fall in inflation expectations of both professional forecasters and the general public in the Czech Republic in 2012–14.
- Until mid-2014, forecasts have eventually reverted back to actual realizations; it remained to be seen whether this would occur in 2015.
- Consumer inflation expectations—which historically have been a good predictor of inflation developments—show tentative signs of bottoming out, but both measures of inflation expectations have a long way to go to return to pre-disinflation levels.
- Survey-based indicators can be misleading; example noted that long-term inflation expectations had been positive on the eve of the three deflationary episodes in Japan (Moghadam, Teja, and Berkmen (2014)).

### Key statistics and exact quantified findings (as reported)
- 12 percent: Contribution of forward-looking inflation expectations to observed inflation variance across all CEE inflation targeters over 2012–14.
- Periods and data vintages used:
  - Quarterly data for ten CEE countries over 2004–14 for Phillips-curve re-estimation.
  - Out-of-sample forecasting evaluation uses pre-2012 relationships (2004–2011) to fit expectation models and assess 2012–14 deviations.
- Policy-related dates:
  - November 2013: Introduction of the FX-floor instrument by the Czech National Bank.

*Source: Appendix I. Background Note on Drivers of Disinflation, _cr15198.*

### Appendix II. Debt Sustainability Analysis

### Appendix II. Debt Sustainability Analysis

### Overview and key findings
- Public debt declined to 43 percent of GDP in 2014 despite the fiscal relaxation, due to favorable cyclical developments and the authorities' use of available treasury liquidity.
- Provided the fiscal targets in the government’s convergence program are met, public debt is projected to stay on a downward path, reaching 39 percent of GDP over the medium-term on the back of the economic recovery and strong revenue collection.
- Public debt and gross financing needs are relatively immune to a variety of isolated shocks, including a shock to real GDP growth.

### Baseline and realism of projections
- Structural fiscal path:
  - Structural deficit: 0.9 percent of GDP in 2014; structural relaxation to 1.5 percent in 2015; structural deficit gradually declining to 1 percent of GDP by 2020.
  - This year’s structural relaxation is mostly due to an increase in capital expenditure, and higher health and pension spending.
- Growth and inflation assumptions:
  - Real GDP growth: 3.0 percent in 2015; 2.8 percent in 2016; medium-term growth converging at 2.2 percent.
  - Inflation: projected to gradually move toward the 2 percent target in 2016.
- Debt outlook under baseline:
  - Debt-to-GDP ratio: projected to decline steadily from 43 percent in 2014 to 39 percent in 2020.
  - The ratio is projected to decline in 2015 despite the expansionary fiscal stance as the authorities plan to continue relying on available treasury liquidity.
  - Gross financing needs: projected to stay below 8 percent of GDP throughout the projection period.

### Shock and stress tests
- Main short-term risk: a shock to real GDP growth.
- Stress-test scenario (shock to real GDP growth with consequent impacts on primary balance, inflation, and the real interest rate):
  - Public debt would rise to 51 percent of GDP and gross financing needs would increase to 12 percent of GDP by 2017.
  - Thereafter, debt would decline to 50 percent of GDP and gross financing needs would drop to 9 percent of GDP by 2020.

### DSA — Key projected indicators (2013–2020)
- Years: 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020
- Nominal gross public debt (percent of GDP):
  - 2013: 33.1
  - 2014: 45.0
  - 2015: 42.6
  - 2016: 41.0
  - 2017: 40.6
  - 2018: 39.9
  - 2019: 39.3
  - 2020: 38.9
  - (Final table entry shown as 38.5)
- Public gross financing needs (percent of GDP):
  - 2013: 3.0
  - 2014: 1.2
  - 2015: 2.0
  - 2016: 7.5
  - 2017: 7.8
  - 2018: 6.8
  - 2019: 7.1
  - 2020: 7.3
  - (Final table entry shown as 7.1/7.15)
- Real GDP growth (percent):
  - 2013: 2.8
  - 2014: -0.7
  - 2015: 2.0
  - 2016: 3.0
  - 2017: 2.8
  - 2018: 2.6
  - 2019: 2.2
  - 2020: 2.2
  - (Final table entry shown as 2.2)
- Inflation (GDP deflator, percent):
  - 2013: 1.4
  - 2014: 1.7
  - 2015: 2.4
  - 2016: 1.6
  - 2017: 1.8
  - 2018: 1.9
  - 2019: 2.0
  - 2020: 2.0
- Nominal GDP growth (percent):
  - 2013: 4.3
  - 2014: 1.0
  - 2015: 4.4
  - 2016: 4.6
  - 2017: 4.6
  - 2018: 4.6
  - 2019: 4.2
  - 2020: 4.2
  - (Final table entry shown as 4.3)
- Effective interest rate (percent):
  - 2013: 3.9
  - 2014: 3.0
  - 2015: 3.1
  - 2016: 2.9
  - 2017: 2.7
  - 2018: 2.8
  - 2019: 3.0
  - 2020: 3.0
  - (Final table entry shown as 3.2)

### Contribution to changes in public debt (selected flows)
- Change in gross public sector debt (cumulative, percent of GDP): 2013: 1.8; 2014: 0.5; 2015: -2.5; 2016: -1.6; 2017: -0.5; 2018: -0.6; 2019: -0.6; 2020: -0.5; cumulative to 2020: -4.1
- Identified debt-creating flows (cumulative, percent of GDP): 2013: 2.4; 2014: 2.2; 2015: 1.0; 2016: 0.4; 2017: -0.3; 2018: -0.5; 2019: -0.5; 2020: -0.4; cumulative to 2020: -1.7
- Primary deficit (percent of GDP):
  - 2013: 2.2
  - 2014: 0.1
  - 2015: 0.9
  - 2016: 1.1
  - 2017: 0.4
  - 2018: 0.1
  - 2019: 0.0
  - 2020: 0.0
  - cumulative to 2020: 1.7
- Primary (noninterest) revenue and grants (percent of GDP): 2013: 38.6; 2014: 40.5; 2015: 39.9; 2016: 40.0; 2017: 39.0; 2018: 39.2; 2019: 39.4; 2020: 39.4; cumulative to 2020: 236.5
- Primary (noninterest) expenditure (percent of GDP): 2013: 40.8; 2014: 40.6; 2015: 40.7; 2016: 41.1; 2017: 39.4; 2018: 39.3; 2019: 39.3; 2020: 39.4; cumulative to 2020: 238.2
- Automatic debt dynamics (percent of GDP contribution): 2013: 0.7; 2014: 2.2; 2015: 0.2; 2016: -0.7; 2017: -0.7; 2018: -0.7; 2019: -0.5; 2020: -0.4; cumulative to 2020: -3.4
  - Interest rate/growth differential (percent): 2013: 0.8; 2014: 1.4; 2015: 0.1; 2016: -0.7; 2017: -0.7; 2018: -0.7; 2019: -0.5; 2020: -0.4; cumulative to 2020: -3.4
    - Of which: real interest rate: 2013: 1.5; 2014: 1.1; 2015: 1.0; 2016: 0.5; 2017: 0.4; 2018: 0.3; 2019: 0.4; 2020: 0.4; cumulative to 2020: 2.3
    - Of which: real GDP growth: 2013: -0.7; 2014: 0.3; 2015: -0.9; 2016: -1.2; 2017: -1.1; 2018: -1.0; 2019: -0.8; 2020: -0.8; cumulative to 2020: -5.8
- Exchange rate depreciation contribution: 2013: -0.1; 2014: 0.7; 2015: 0.0
- Other identified debt-creating flows: -0.5 in 2013 and 0.0 subsequently (includes general government net privatization proceeds (negative): -0.5 in 2013 and 0.0 subsequently)
- Residual, including asset changes (percent of GDP): 2013: -0.6; 2014: -1.8; 2015: -3.5; 2016: -1.9; 2017: -0.1; 2018: -0.1; 2019: -0.1; 2020: -0.1; cumulative to 2020: -2.3

### Alternative scenarios and underlying assumptions
- Baseline underlying assumptions (selected, percent):
  - Real GDP growth: 2015: 3.0; 2016: 2.8; 2017: 2.6; 2018: 2.2; 2019: 2.2; 2020: 2.2
  - Inflation: 2015: 1.6; 2016: 1.8; 2017: 1.9; 2018: 2.0; 2019: 2.0; 2020: 2.0
  - Primary Balance: 2015: -1.1; 2016: -0.4; 2017: -0.1; 2018: 0.0; 2019: 0.0; 2020: -0.1
  - Effective interest rate: 2015: 2.9; 2016: 2.7; 2017: 2.8; 2018: 3.0; 2019: 3.0; 2020: 3.2
- Historical scenario (selected):
  - Real GDP growth: 2015: 3.0; 2016: 2.1; 2017: 2.1; 2018: 2.1; 2019: 2.1; 2020: 2.1
  - Primary Balance: 2015: -1.1; 2016: -1.9; 2017: -1.9; 2018: -1.9; 2019: -1.9; 2020: -1.9
  - Effective interest rate: 2015: 2.9; 2016: 2.6; 2017: 3.0; 2018: 3.2; 2019: 3.4; 2020: 3.6
- Constant Primary Balance scenario (selected):
  - Primary Balance: -1.1 for 2015–2020
  - Effective interest rate: 2015: 2.9; 2016: 2.6; 2017: 2.7; 2018: 2.8; 2019: 2.8; 2020: 2.9

### Composition of public debt and market indicators (high-level)
- Charts and tables present composition by maturity (medium and long-term vs short-term) and by currency (local vs foreign currency-denominated) for 2013–2020 projections.
- Sovereign spreads and ratings reported: EMBIG (bp) 38; 5Y CDS (bp) 50; Moody's A1/A1; S&P AA-/AA; Fitch A+/AA-.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15198.pdf_