Czech Republic: Finance ministry drafts 2025 budget bill, sets a CZK 230bn deficit target

• The deficit target is considered a compromise between fiscal stability and growth support
• PM Fiala assured that this budget has the highest public investment plans during his term
• Wage bill to rise by 5%, though likely not uniformly
• General government deficit to reach 2.1% of GDP in 2025, down from 2.5% of GDP in 2024
• We estimate gross financing needs at about CZK 494bn (6% of GDP) in 2025, mostly due to higher debt repayments
• The finance ministry will still bet primarily on debt issuance in local markets
• Pirates complain of insufficient money for home construction, remarks are likely triggered by 2025 being an election year

The finance ministry published the 2025 budget bill, though there are a few more documents that need to be made public, which will happen until the end of September, according to a press release. The deficit target at state government level is CZK 230bn, which is in line with remarks made by FinMin Zbynek Stanjura and PM Petr Fiala in the past few weeks. The targeted deficit is thus lower by CZK 22bn, which many immediately see as a compromise, given pressure from coalition parties not to reduce spending too much. PM Petr Fiala posted on X that this was a budget with the biggest possible increase in public investment, outlining priorities as research & development, education, and defence. He also confirmed a CZK 20bn increase in the public sector's wage bill, which is the equivalent of a 5% increase.

The general government budget will target a deficit at 2.1% of GDP in 2025, down from 2.5% of GDP in 2024. General government debt is projected to increase from 43.7% of GDP at the end of 2024 to 44.4% of GDP at the end of 2025. The main reason is higher borrowing costs, as debt amortisation is projected at CZK 261.7bn in 2025, up from CZK 220.1bn in 2024. This year has been an outlier, with lower debt amortisation payments, which are expected to be around CZK 300bn in 2027-2031.

Regarding financing, there are few differences from the update to the debt funding and management strategy, which is why we estimate gross financing needs at about CZK 494bn (about 6% of GDP) in 2025, up from CZK 476.5bn (6% of GDP) in 2024. There will be likely some adjustments to that number, but the absolute level should be around there. The finance ministry continues to be primarily on domestic financing, as the table above indicates, though we cannot rule out bilateral loans from IFIs as a financing source, given lower borrowing costs. This is one of the documents that has not been published yet, so we may expect more details on financing later in September.