|
|
|
|
 |
||
 |
 |
Wednesday, March 28, 2001
World Bank says country must cut spending significantly
By Jennifer Hamm
The country's economic recovery could be jeopardized if the government fails to cut spending in several sensitive areas, including health care, pensions and education, according to a new study by the World Bank.
The gap between state costs and revenues must be cut in half, warns Roger W. Grawe, head of the World Bank's regional office. Fixing the complex problem -- filled with political landmines -- will take fiscal restructuring and a solid plan to cut swelling price tags on social programs.
"It is this upward trajectory that is the real core of the problem," he said. "Reversing this is not an easy task."
The country's economy is not too far removed from a recession, and at the same time it is working through a significant economic restructuring. That makes deficit spending understandable, World Bank officials said, but it's clear the Czech budget is also struggling with rising levels of mandatory spending.
If not addressed, the ultimate result could be another recession, less foreign investment and decreasing value of the country's currency, experts say.
The World Bank study was done at the request of the Finance Ministry, part of an effort to tackle the country's budget deficit and get it in line with European Union requirements.
The extensive report, which took two years to compile, merely details problems that are already well-known, say experts like Ondrej Schneider, an analyst at Patria Finance. But it can still be helpful.
"It's good that it has been summarized and it bears the World Bank's signature," he told the CTK news agency. "This is another external pressure applied on the government."
For the first time since 1996, the Czech economy grew in 2000, a trend that's expected to continue.
But at the same time, the 5 percent budget deficit is also expected to grow another 1 percent this year. And there are few opportunities for increasing revenues, since Czech taxes are already high and comprehensive.
The World Bank suggests solving the problem through cost-cutting.
If not addressed, Grawe told the daily Mlada fronta Dnes that "there is the danger of repeating the monetary crisis of 1997. The economy would go through the traditional cycle -- growth, crisis, recession."
The report says one of the most painful financial burdens -- costing as much as 15 percent of the gross domestic product -- comes from the bank bailouts of the late 1990s.
The World Bank says the country must realize this "legacy of past excesses cannot now be wished away. The best option is to confront it squarely" and avoid delaying recognition of the underlying losses.
Another problem is the country's pension system, which is struggling as fewer workers are paying into it and the number of pensioners is growing. The report suggests increasing the minimum retirement age.
Recommendations for health, education, transportation and housing were also made.
"The fact of the matter is that none of this is easy," said Bernard G. Funck, chief economist of the World Bank's European division for economic management and poverty reduction. "It's going to require going under the hood and finding new ways to restructure these programs."
Finance Minister Pavel Mertlik said the report has shed new light on many aspects of public finance and said the government might not have been looking at the picture clearly.
"Without doing something radical, it was quite clear that things would quickly deteriorate," Mertlik said, adding that this would tarnish the country's international reputation, and slow economic prosperity. Mertlik said he disagreed with some aspects of the report, but didn't elaborate.
With the 2002 budget already drafted and an election slated for the same year, the report's suggestions are unlikely to be acted on until 2003.
That puts the country in a time crunch, as it hopes to join the EU by 2004.
Petr Zahradnik, an analyst with Conseq Finance, told the CTK news agency that the report might make it easier for officials to make tough decisions.
"The principal outcome ... is in the fact that this strong supranational body recommends to Czech government certain steps, which this government does not care about too much when initiated by domestic sources," he said.
Cutting the fat
Other points and recommendations of the World Bank report:
Jennifer Hamm's e-mail address is
jhamm@praguepost.cz
More business stories
The holy grail of beer
Bay Area businessman completes 20-year odyssey to bring Budvar to U.S. shelves
Foot-and-mouth silver lining
Bohemian chemicalmaker sees boom in sales as country tries to prevent spread of disease
Movers & Shakers New faces zoom into Zoom
Spaces & Places ING becomes three
The Prague Post, a weekly newspaper published in the Czech Republic.
Unauthorized reproduction is strictly prohibited.
Back to Top
Home