Czechs plan higher budget gap, raising defence spending to 2% of GDP

The ​Czech Finance Ministry is proposing targeting a ​budget deficit of 389 billion ‌crowns ($18.71 billion) ​for 2027, up from 310 billion crowns planned this year, Finance Minister Alena Schillerova said on Monday.

Schillerova said the government was ‌raising core defence spending to 191 billion crowns, hitting the NATO floor of 2.0% of gross domestic product for the first time in many years, as well as spending more on road and rail ‌investments, healthcare and public wages. Schillerova said the public sector deficit would be 2.8% of gross domestic ‌product next year, after 2.7% forecast this year and 2.1% in 2025, before the current government took office.

She said the country would keep deficits well below the EU average and below its central European peers, and would start reducing ⁠them ​from 2028. The government led ⁠by Prime Minister Andrj Babis' populist ANO party has pushed through a relaxation of legislation giving guard rails to spending, ⁠saying the previous cabinet had left behind gaps in financing of key policies.

Lowering the deficit next year would "catch ​Czechia in a trap of unfinished construction projects, inaccessible healthcare and economic stagnation," Schillerova told ⁠a news conference. The country ranks bottom for defence spending among NATO members despite a rising security threat from Russia, with the Babis ⁠government ​cutting the core defence spending allocation prepared for this year by the previous cabinet to slightly above 1.7% of GDP.

NATO has called on members to raise core defence spending to 3.5% ⁠of GDP and overall defence-related outlays to 5.0% by 2035 and a number of members have already ⁠boosted spending significantly above the ⁠2% level. The Czech Finance Ministry had earlier forecast government debt would reach 45.8% of GDP at the end of 2026, rising but still far ‌below the ‌EU average.

($1 = 20.7960 Czech crowns)