Czech re­gional and lo­cal govern­ments’ fi­nances will strengthen fur­ther in 2016-17

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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