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Czech government fails to reach agreement on budget framework, postpones decision

The Czech state budget has been in a huge surplus this year. Budget balance for the first four months of 2016 has reached the biggest cumulative surplus since 1993. According to figures released by the Ministry of Finance early in April, the budget surplus for the first quarter of this year was the highest in the history of the Czech Republic, reaching CZK 43.6 billion.

"However the record result for the first quarter does not have to mean that a high plus balance can be maintained until the end of December", said economist Pavel Sobíšek of UniCredit Bank.

Stronger revenues implied by solid economic growth and good VAT revenues have contributed to the positive budget performance. Meanwhile, the Czech government on Monday failed to reach agreement n a budget framework for next year and for later years and postponed the decision.

"The positive budget performance is then definitely good news for Czech government bonds, because the planned public budget deficit for this year is targeted at CZK 70bn and such deficit will be very hard reach unless something very nasty happens with the Czech economy. We think that the public budget deficit will be just CZK 50bn or lower, which implies lower bond supply going forward." notes KBC in a report.

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