March 23, 2020 / 6:05 PM / 2 months ago

UPDATE 1-Czech government plans record budget deficit to fight coronavirus

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PRAGUE, March 23 (Reuters) - The Czech government on Monday approved a five-fold rise in this year’s budget deficit, putting it on course for a record, as it offers help to businesses hit hard by the coronavirus outbreak.

The Finance Ministry also slashed its 2020 economic outlook to a 5.1% contraction versus previous estimates of 2.2% growth.

Finance Minister Alena Schillerova said the real impact of the outbreak was not yet known, as measures to fight the coronavirus keep people at home while most shops and restaurants are shut and a growing number of factories on hiatus.

The government approved new measures on Monday, including a “kurzarbeit” system where the state contributes to workers’ wages at companies that are forced to halt or limit production, helping them avoid layoffs.

The state will also give the self-employed a six-month holiday on payments into the state social and health systems, which lawmakers are expected to pass in a special session on Tuesday.

The new measures are part of state pledges promising 100 billion crowns ($3.87 billion) in direct aid and another 900 billion crowns in loan guarantees.

The government approved raising the 2020 central budget deficit to 200 billion crowns, from an original target of 40 billion crowns.

That would surpass the 192.4 billion crown deficit in 2009 at the height of the global financial crisis.

Since 2016, the state’s overall finances have been in surplus, helped by strong economic growth and falling joblessness. State debt at 31.2% of gross domestic product is one of the lowest in the European Union.

“The deficit rise should help cover higher expenditure of the state which we have to invest into companies, invest into people so that we maintain employment and keep the worst-hit companies in some shape,” Schillerova told a news conference.

Business leaders and analysts have said they feared a bigger economic hit than in the last crisis just over a decade ago and wanted help administered quickly.

Most shops and restaurants, except grocery stores, pharmacies, drug stores, gas stations and food establishments offering takeaways, have been shut for nearly 10 days and the government extended that ban on Monday to April 1.

People’s movements are limited to trips to work or to visit family, also until April 1, while international travel will stay shut down for longer.

($1 = 25.8410 Czech crowns)

Reporting by Jan Lopatka and Robert Muller, writing by Jason Hovet; Editing by Mike Collett-White

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