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

The ​Czech Finance Ministry is proposing 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 hit 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.

The deficit will ‌be 3.5% of gross domestic product next year, although it would be counted as 2.8% for the ‌purpose of meeting EU budget targets which allow extra borrowing for some defence spending. That follows a forecast of 2.7% for this year and 2.1% in 2025 before the government took office. Schillerova said the deficit was below the EU average and below central European ⁠peers, and ​the government would start reducing ⁠it from 2028.

But she said lowering the deficit next year would "catch Czechia in a trap of unfinished construction projects, inaccessible healthcare and economic ⁠stagnation". The centre-right opposition criticised the proposal, sayingthe deficit is unacceptable at a time of 2% economic growth and low unemployment. ​The ministry's proposed budget must first be approved by the cabinet and parliament.

The country ranks near the ⁠bottom for defence spending as a share of GDP among NATO members, and the government led by populist Andrej Babis cut the defence ⁠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. The budget proposal sees debt servicing costs rising by 18% next ‌year to 130 ‌billion crowns.

($1 = 20.7960 Czech crowns)