On 16 May 2016 the IMF published a report following conclusion of talks with the Czech Republic under Article IV of its articles of agreement.
Following a 4.2% expansion of the economy in 2015 growth in the Czech Republic is expected to slow sharply to 2.2% in 2016, owing to the slow start of investment projects financed from the next EU fund cycle. Inflation will be pulled up by domestic demand pressures. Risks to the economic outlook are balanced with weaker external demand weighing on exports.
The IMF considers that the government should resist pressure to reduce taxes or increase spending before the election next year. The government’s efforts to reduce tax avoidance through electronic VAT reporting, a rollout of online cash registers and other measures are welcomed. The VAT rates for restaurants have been unified as a simplification measure but the IMF considers that further shifting of items to lower VAT rates should be avoided.
The IMF considers that structural reforms are important for increasing potential growth. This includes labor market reforms including education and vocational training to increase the labor market participation of the low-skilled. Innovation should be promoted through measures to improve the prioritization of research and development spending in addition to cooperation between research centers and business. The business environment could be improved by increasing the predictability of policy and regulation, reducing the administrative burden and increasing the efficiency of judicial procedures.
