In 1994, the Czech Republic's favorable economic results corresponded in their main parameters to the intentions of the CNN monetary program and the state budget. The economy assumed an upward trajectory and though final figures on GDP are as yet unknown, preliminary calculations indicate that last year was the first year of growth since economic reforms started. The average inflation rate was under the 10% limit, unemployment just above 3%. The state budget ran a surplus of about CZK 10 bn and municipal budgets more than CZK 21 bn. These budget surpluses helped to significantly decrease net Government debt with the banking system. The gross state debt recorded slight growth in connection with the debtor position of the Czech Republic in the clearing payment system with the Slovak Republic, but its share of the anticipated GDP fell by 1.6 percentage points to approximately 16% at the end of 1994. This is much less than allowed, e.g., by the convergence criterion for EU countries set by Maastricht agreements (60%). CNB foreign exchange reserves were more than USD 6 bn and the volume in the entire banking system nearly USD 9 bn. The foreign exchange position of the Czech Republic improved substantially. The nominal exchange rate remained stable and throughout the year the Czech crown experienced real appreciation against major foreign currencies. The money supply did not stick to the limits set by the monetary program, due particularly to strong foreign capital inflow, but its more rapid growth rate has not yet directly influenced price levels.
In December, prices of meat and meat products were stable, price movements of other foodstuffs were slower and the price of coffee fell in comparison with November. The food market thereby positively affected catering prices.
The year-to-year increase in consumer prices was 10.2% in December and 10.0% for the whole year.
Last year, price growth on the producer market was about 50% lower than the consumer market. Compared to 1993, production prices increased :
-in industry by 5.3%,
-in construction, prices of material consumption by 6.1% and of construction work by 14.0%,
-in agriculture by 4.7%, of which 11.5% for livestock products, while for vegetable products, prices dropped by 4.4%.
The state budget ran a surplus of CZK 10.4 bn after accounting for revenues and expenditures related to last year and booked within the so called additional period as of 13 January 1995. Central budget revenues were higher by CZK 8.6 bn, while drawing on expenditures dropped by CZK 1.8 bn.
During the year, social insurance contributions were transferred to the budget, their total exceeding the planned amount by CZK 8.6 bn. Consumer tax revenues were CZK 4.0 bn higher than planned in the budget. Better fulfillment was recorded also for road tax revenues (by CZK 1.4 bn) and customs duty revenues (by CZK 0.1 bn). In contrast, VAT revenues remained below the budget by CZK 10.6 bn. This was particularly effected by:
-a higher increase in deliveries to be exported for which tax payers claimed deductions,
-shifts in the structure of economic activities towards those with a lower taxation rate (services, food processing),
-a probable decrease, signaled by spot-checks, of market stallholder receipts,
-in part also by delinquent taxes and tax evasions.
Tax revenues from incomes of juridical persons also lagged behind budgetary expectations (-CZK 7.2 bn), reflecting the effects of some firms' insolvency and some permitted tax payment deferments for creating several years in advance a single repair fund and implementing a more rapid writing-off of material fixed assets.
Last year, municipal budgets ran a surplus of CZK 21.3 bn. This was particularly due to:
-strengthening of the financial self-sufficiency of district authorities and municipalities following from their stable income base,
-yields from municipal bond issues amounting to, in the case of the Municipal Authority of the City of Prague, CZK 7.4 bn.
In local authority revenues, an important role was played by income taxes of natural persons, distinguished by a steadily high rate of growth, and by collections from leasing, educational payments and housing revenues.
The gross (internal and external) state indebtedness share of the GDP fell from 19.8% in 1992 to 17.5% in 1993 and 15.9% in 1994 according to preliminary data. Issues of state securities covered at the end of last year the debt service of the state, budget deficits of 1991 and 1992 and expenditures connected with financing housing construction and rehabilitation.
As of the end of December 1994, the unemployment rate was 3.2%, higher by 0.1% than November. The annual average was 3.3%, i.e. 1.7% less than expected. A moderate increase in December resulted from specific problems in some regions, particularly
-employee layoffs in Tatra Koprivnice in the district of Novy Jicin,
-increase in the number of new job applicants who had worked in coal mining in the Karvina district.
In regions with an above-average unemployment rate, conditions for finding a new job or retraining unemployed persons are made more difficult by, among other things, the fact that about 2/3 - 3/4 of them have low or no skills at all.
The GDP in constant prices grew by 2.1% for the first 9 months of 1994 according to revised data. During the last three months upward trends in the economy were further strengthened. Industrial production in constant prices was higher by 3.5% in November compared to last year and by 2.2% for the 11 months as a whole. November's performance decline was offset by firms with 25 and more employees where the 11-month production volume reached last year's level. In construction, production in comparable prices increased by 12.6% in November and by 6.9% from the year-beginning. In both sectors, the growth rate of labour productivity for the eleven months of 1994 was higher than that of average real wages:
Labour productivity (Average,real wages)
Industry (5.2%, 4.6%)
Construction (5.7%, 3.6%)
Last year, the money supply increased by 18.7% according to preliminary data and by 20.3% after seasonal adjustment. This development was particularly effected by the external sector and domestic credit issues.
The total yearly increase in net foreign assets was CZK 89.5 bn and resulted from surpluses of the balance of payments current and capital accounts in convertible currencies. The inflow of foreign resources strengthened, especially during November and December when the central bank purchased through foreign exchange fixing about USD 1.0 bn. This was reflected by an increase in CNB foreign exchange reserves (to USD 6.2 bn as of the end of the year) in spite of the fact that during the last two months of 1994 it was necessary to make payments to the SR for exceeding the marginal credit (USD 93 mil. in November and USD 65 mil. in December) and a bond payment to Nomura (USD 136 mil.). At the same time, a repayment was effected of the CR share of 1991 Eurodollar bonds of the former SBCS (USD 136 mil.).
The volume of domestic credits jumped last year by CZK 85.0 bn, less than 1993 (CZK 105.1 bn). At the end of 1994, the domestic credit issue slowed and the monthly increase in credits fell on average to CZK 5.2 bn in Q4 compared with CZK 7.0 bn in Q3 (CZK 6.3 bn in Q1 and CZK 9.8 bn in Q2).