Czech parliament approves raising record 2020 budget gap for a third time

PRAGUE (Reuters) - The Czech lower house of parliament approved a government plan to run a record 500 billion crown ($21.11 billion) central state budget deficit in 2020, more than 12 times the original target set before the coronavirus pandemic hit.

The gap would be equal to around 9% of the country’s expected 2020 gross domestic product. That is before a potential additional impact of local budgets, the health system and other parts of the public sector is factored into overall public finances.

The deficit increase from a previous plan of 300 billion crowns is the third time the government has raised the gap since the novel coronavirus hit Europe hard in March, leading to the shutdown of much of daily life and business.

While most restrictions have gone, the central bank has forecast an 8% fall in GDP this year, before a 4% rebound in 2021.

“I think this is a budget that maintains employment, that supports investment which is beneficial for all citizens of our country,” Prime Minister Andrej Babis told lawmakers.

The state budget council has called the massive jump in the deficit plan premature.

However, the Czech Republic has room to lift debt after driving it down in the past few years to 30.8% of GDP in 2019, versus an EU average of 79.3%. The ministry easily covered the bulk of its planned borrowing in bond auctions in the first half of the year with investor demand staying strong.

The budget crunch comes as the economic contraction cuts tax income and the state spends more to help businesses and workers.

Babis’s government has pledged around 1.2 trillion crowns in total for support, most of that coming in state-backed commercial loans and guarantees.

Businesses, though, have complained aid has been slow and sometimes hard to get.

Reporting by Jason Hovet; Editing by Catherine Evans, William Maclean