The Czech Republic's economy in 2024: budget deficit CZK 10.6 billion was lower than planned, but also thanks to non-systemic measures
SAO OPINION ON THE DRAFT STATE CLOSING ACCOUNT OF THE CZECH REPUBLIC FOR 2024 (3 September 2025)
How did the Czech Republic's economy fare in 2024? At first glance, some indicators are optimistic compared to 2023: inflation fell to 2.4%, unemployment remained the lowest in the EU, and the state budget deficit was CZK 10.6 billion lower than the planned deficit of CZK 282 billion. However, a more detailed analysis of the draft Closing account of the Czech Republic for 2024, carried out by the Supreme Audit Office (SAO) in its opinion, dampens this optimism. For example, the SAO found that without the positive balance of funds from the EU and financial mechanisms amounting to CZK 17.5 billion, the budget deficit would have exceeded the planned amount by almost CZK 7 billion.
The budget balance was also affected by the fact that, following the September floods, the government increased the government budget reserve by CZK 30 billion. However, only CZK 15.6 billion was ultimately allocated for flood damage repair. Of this, only CZK 3.5 billion was actually drawn down. The government used the remaining funds for other purposes, such as social services and benefits and subsidies for renewable energy sources. The budget on the revenue side was helped, among other things, by revenues from the windfall tax. In 2024, these reached CZK 36.7 billion. However, the government did not use a large part of this revenue in accordance with its original intention, i.e., to compensate for expensive energy. Moreover, revenue from the windfall tax is only temporary and will end in 2025. A consolidation package was supposed to contribute to improving the state budget balance by CZK 98.8 billion in 2024. However, the overall balance ultimately decreased by only CZK 17.1 billion year-on-year, partly due to new expenditures, such as defence.
Unlike in most EU countries, public debt as a percentage of GDP has continued to grow in the Czech Republic since 2020. Last year, it reached 43.6% of GDP (i.e., almost CZK 3.5 trillion), approaching the debt brake threshold. Expenditure on servicing the government debt rose by 30% year-on-year, reaching CZK 88.5 billion last year.
Labour market data show that hourly wages in the Czech Republic are approximately half the EU average, and real wages in the Czech Republic (along with Sweden) have seen the sharpest decline among OECD countries. On the other hand, according to the OECD, the tax burden on labour in the Czech Republic has been high for a long time.
"The task of politicians is to decide what we can afford and what we cannot. And they face difficult dilemmas. Without them, however, we will not be able to reverse the negative trajectory of economic development and structural problems in the state budget. In this situation, where the government debt and interest on it are growing and new plans are emerging, such as huge defence spending at the approved 5% of GDP, it will be necessary to decide at the expense of which investments we will secure this increase in spending. These are difficult questions, but we must ask them more often than ever. It is clear that we will not be able to afford everything we are used to. We will have to decide what we can really afford and what we will have to give up, where we can save money and what we will have to cut. Without hard data and unpleasant decisions, the future is likely to be even more expensive. And poorer," commented Miloslav Kala, SAO President, on the developments.
Capital expenditure on defence increased by 152% year-on-year
Between 2023 and 2024, there was a significant change in the structure of capital expenditure in the state budget in favour of defence spending. This increased by 152% and exceeded 2% of GDP. As a result, the Czech Republic fulfilled its NATO commitment for the first time since 2003. At the same time, however, this raises the question of whether these funds were used effectively. In December 2024 alone, the Ministry of Defence (MoD) spent approximately CZK 50 billion (30% of the MoD's annual expenditure) on, among other things, advance payments for certain contracts, rather than on the purchase of equipment as such. For the whole of 2024, advance payments for strategic military equipment reached a record CZK 71.3 billion. However, the fact that these funds were spent does not in itself guarantee a strengthening of the Czech Republic's defence capabilities.
It should be added that the value of defence contracts awarded to Czech companies in 2024 accounted for less than 25% of the total amount. Most of the funds went outside the Czech Republic, which significantly limits the multiplier effect of these investments on the national economy and reduces their contribution to GDP growth. Investment in research is key to creating higher added value in the defence industry. However, last year the MoD allocated only 0.2% of its total expenditure to research and development. Without greater involvement of domestic industry and support for research, higher defence spending may not have a positive impact on the Czech economy.
State funds are losing their justification
The management of state funds ended in 2024 with a deficit of CZK 19 billion, which was largely covered by debt financing. Expenditures on their operation reached CZK 3.2 billion. If state funds do not have sufficient scope for long-term planning of strategic investments in terms of their budget composition and their operation is too expensive, their functioning needs to be adjusted. State funds should not merely act as intermediaries in the flow of public finances or serve as a tool for borrowing outside the state budget. It appears that the funds are losing their justification, and their role should be reassessed. As early as 2012, the SAO recommended considering their benefits and then merging or abolishing some of the funds.
Communication Department
Supreme Audit Office