Europe

Fitch’s move raises the fear of painful cuts in Czech credit ratings

“The main reason is the situation in Ukraine and its potential impact on the Czech economy, especially on the energy supply.

“This is because Russia is highly dependent on gas and Russia is highly dependent on oil.

“Therefore, there is concern among the international financial community that these disruptions in supply could have a major impact on the Czech economy.”

There is also speculation that Fitch may lower the Czech Republic’s credit rating from the current AA- after following an uptrend for almost a quarter of a century. This is the second highest level. How likely are you to do that?

“The current situation is very pessimistic for the Czech economy due to its proximity to Ukraine and Russia and its strong reliance on Russia’s energy, so it is likely to be 60% over the next 12 months. I think.

Lukasuko Banda | Photo: Elena Horálková, Czech Radio

“And we’ve had financial problems for quite some time.

“Our public debt is growing at one of the fastest paces in the European Union countries.

“First of all, we need to stabilize our finances, but because of the war, I think it’s a rather difficult and complicated task.

“I’m worried that rating agencies, at least some, may not be able to stabilize it fast enough to keep Czech debt from being downgraded.

“Therefore, perhaps some rating agencies, where Fitch was the first rating agency, will downgrade within the next 12 months.”

It probably sounds pretty abstract to many. What does it really mean if Fitch went ahead and lowered the Czech Republic’s credit rating?

“A downgrade of a rating increases the likelihood of some sort of default.

“And that means that international investors demand higher interest payments from the Czech government to lend money to the Czech government.

“For the Czech government, that means you have to pay high interest, so you have less money for pensions, social qualifications, infrastructure, construction investment, and other classic financial goals.

“Therefore, the government needs to take so-called austerity policies or raise taxes, neither of which is popular with the general public, especially the very rapid inflation, the negative effects of the pandemic and, of course, the war in Ukraine.”

https://english.radio.cz/fitch-move-sparks-fears-painful-cut-czech-credit-rating-8749933 Fitch’s move raises the fear of painful cuts in Czech credit ratings

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