Czech Billionaire Minister Says Red Tape Hinders Investment

By Krystof Chamonikolas Dec 11, 2014 4:21 AM PT

The Czech government’s ability to boost economic growth with state spending is limited by laws delaying road building and other investment, Finance Minister Andrej Babis said.
The ministry is preparing bills for easier and faster expropriation of land needed for roads, obtaining building and environmental permits and hiring construction companies, Babis said in an interview in Prague yesterday.
The ruling coalition led by Social Democrat Prime Minister Bohuslav Sobotka, in office since January, approved its first budget yesterday with an
aim to support economic growth after a record-long recession. The cabinet planned more spending on pensions, public-sector salaries and infrastructure projects, while it kept the deficit below the European Union limit.
“Our problem is that we could invest much more, but the laws are a hurdle, as well as our situation regarding the usage of EU funds,” Babis said. “I definitely wouldn’t save on investment at all.”
Czech bonds are heading for their biggest yearly rally on record as economic growth picks up while the government cuts borrowing. The rate on the government’s koruna notes due May 2024 fell to an all-time low of 0.67 percent today by 11:05 a.m. in Prague, the lowest yield in the EU after AAA-rated Germany, according to data compiled by Bloomberg.

Economic Growth

The Finance Ministry forecasts gross domestic product growth of 2.4 percent this year, after a 0.7 percent contraction in 2013. It sees expansion accelerating to 2.5 percent next year.
The public finance deficit, the fiscal yardstick for assessing an EU member’s readiness to adopt the euro, will widen to 1.5 percent of economic output this year, from 1.3 percent in 2013, according to Finance Ministry forecasts. The shortfall is projected at 2.2 percent of GDP in 2015.
While capital expenditure envisaged by the 2015 budget at 75.6 billion koruna is 1.8 percent higher than this year’s plan, it’s 26 percent less than in 2013, according to data on parliament’s website.
“The Finance Ministry probably knew it couldn’t invest more because of administrative obstacles,” Jakub Seidler, chief economist at ING Groep NV’s unit in Prague, said by e-mail today. “With other spending being higher, the overall fiscal impulse for GDP growth should be stronger than this year.”

State Operations

Babis has pushed for savings on state operations since he took his post after giving up the chief executive job at his petrochemical empire, Agrofert, that made him the second-richest Czech with a fortune estimated at about $2.5 billion by Forbes.
He has forced government-owned companies to contribute more to the state budget and overhauled the cash-flow management to tap idle funds for short-term financing, which curbed debt sales.
While Babis “hopes” the 2015 deficit will be less than the approved ceiling of 100 billion koruna ($4.5 billion), he wouldn’t oppose more investment spending “even if this means increasing our indebtedness,” he said.
“I can see room to support growth by removing the bureaucracy and by trying to find the money outside the budget,” Babis said.