Big Bang or damp squib?

10-07-2001

 Trade and Industry Minister Miroslav Gregr Trade and Industry Minister Miroslav Gregr Trade and Industry Minister Miroslav Gregr's proposal to pump 260 billion Czech crowns into the economy to fuel growth met with a cool reception last year. The main question posed by analysts was how to fund the project, as the Czech Republic already has a large budget deficit and national debt. Mr Gregr has insisted that the project could and would work, and put his plan to the government on Monday. The version approved is much smaller than originally planned, with 100 billion crowns, or some 2.8 billion US dollars, axed from the budget. Radomir Jac of Commerzbank is sceptical of the additional impact the Big Bang could have, as the majority of the money to be invested, almost 75 percent, has already been allocated for government investment programmes:

"We can discuss what the likely impacts of the project will be, but I think in the end the impact will be relatively limited, because the sum to be spent is smaller than originally expected, and it also seems that the Big Bang project contains already existing projects from various ministries."

Trade and Industry Minister Miroslav Gregr predicted on Monday that the Big Bang will bring about a 6 percent growth in Gross Domestic Product in the Czech Republic next year, a figure some two percent higher than that put forward by the private sector and the European Union. Analysts such as Radomir Jac have reacted sceptically to Mr Gregr's claim:

"I would say that the relationship between an artificial increase in domestic investment demand and between economic growth and inflation, and external deficits is very fragile. I expect the project to have a fairly limited impact, though it will of course be positive as far as economic growth is concerned. But I would expect GDP growth this year to remain slightly below four percent. Next year it could be above four percent, but I would be very sceptical of the figure of six percent for economic growth in 2002."

The Czech Republic was warned recently by the International Monetary Fund over the size of its national debt, as its public finance deficit is several times over the IMF's recommended limit. With 35 billion Czech crowns of the Big Bang's budget expected to come from state coffers, at a time when Czech economic growth is already higher than the EU average, one of the main criteria for evaluating the success of the Big Bang may be its impact on public finances:

"This project is coming at a time when we have negative trends in public finance, plus at a time when investment demand in the Czech economy is growing at a very positive rate, without any special programme from the government. So I would be rather cautious when evaluating this programme and obviously its impact on public finance will be of major importance for future evaluations of the Big Bang project."

10-07-2001