Czech regional and local governments’ finances will strengthen further in 2016-17
Rising operating revenue driven by sustained economic growth will boost the budgetary performance of Czech regional and local governments (RLGs) in 201617, Moody’s Public Sector Europe (Moody’s) said in a report.
“We expect Czech RLGs’ operating revenues to rise, reflecting favourable macroeconomic trends and rising receipts from shared taxes. This, combined with restrained cost growth, will boost their financing results,” said Gjorgji Josifov, an analyst at Moody’s.
The rating agency forecasts that the sector’s already robust operating balance will strengthen by 3% in 2016-17, giving it a financial surplus of 1-2% of total revenue.
The rating agency also expects that Czech cities’ debt burdens will decline, and that they will stabilise at low levels for regions. RLGs will likely borrow less in 2016-17 just as their accelerates, reducing proportion of revenues.
Moody’s projects that the RLGs’ debt will decline to 32% of operating revenue by year-end 2016 from 39% in 2014, and to fall again to about 30% by the end of 2017.
As a result, RLGs’ debt servicing costs will decline to 4.5% of operating revenues by 2017, compared with an average of revenue growth their debt as a 6.4% over the past five years.
The rating agency noted that Czech RLGs’ liquidity is more than adequate to cover debt service costs. Both cities and regions have a sound liquidity position, with cash reserves equivalent to about 0.8x outstanding debt for the sector as a whole. It expects that strong cash flow management and increased tax revenue will improve its liquidity-to-debt ratio to about 1x in 2017.