The Czech government, battling to win over a sceptical electorate and prove its economy is in better shape than its neighbours’, yesterday announced it will be the first country to graduate from the EBRD.
Deputy finance minister Tomas Prouza told Emerging Markets in an interview that the country no longer needs the multilateral bank because commercial lenders are able to fulfil all its domestic needs.
“What we’re doing is recognizing the fact that there are no projects for the EBRD in the Czech Republic any more,” Prouza said. His attitude contrasts with the stance of Polish counterpart Jaroslaw Pietras who yesterday refused to set a timeframe for graduation, stressing that the EBRD still has an important role to play in niche areas of the economy.
The graduation will support central Europe’s second largest economy in its bid to be recognized alongside western peers rather than being lumped together with the nine other nations that joined the EU two years ago. The Czech government stresses that it is not trying to attract low-wage outsourcing but wants to bring in higher value-added investment projects.
“What worries me a little bit is many investors look at the region as a whole. If there’s a problem in a neighbouring country we feel it to some extent,” Prouza complained. When asked who he views as the country’s closest rival, he said “Ireland ... and in many areas we’re competing with Germany.”
Nevertheless, the strong performance of the economy, which grew 6% last year, may not be enough to save the social democrat government of prime minister Jiri Paroubek. Going into the June 2 and 3 vote, polls show the opposition civil democrats holding a narrow lead.
The social democrats oversaw the Czech Republic’s accession to the EU, and yet only 44% of its 10 million citizens view membership positively, below the 49% average across the 25 countries.
“The EU entry caused an economic boom. Just because you became an EU member there was an enormous amount of FDI,” Prouza insists.
Despite the economy’s current strength, concerns remain. Prouza issued a warning about spiralling growth in household borrowing: “If there’s a potential to cause a problem it comes from consumer lending. In about a year or so we’ll start seeing people going bankrupt.” Another danger is the budget deficit, forecast by Bank Austria Creditanstalt to leap to 4% in 2007 from 2.6% this year.
“I would really worry about the spending of the next government. Fiscal policy is certainly something we might have a problem with,” Prouza noted.