Floods Throw $1.8 Billion Wrench Into Czech Austerity Plan

(Bloomberg) -- The Czech Republic plans to increase fiscal deficits this year and the next to address the damage caused by widespread floods, another blow to the government’s ambition to curb state debt.

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The central European country suffered the worst floods in decades over the past week as heavy rain swelled rivers. The government has yet to provide a precise estimate of the total damage, but Finance Minister Zbynek Stanjura said the costs will be split between the state budget, municipalities, insurance companies and aid from the European Union.

The 2024 budget gap will widen by 30 billion koruna ($1.3 billion), or by about 12% from the originally planned target of 252 billion koruna, Stanjura told reporters in Prague on Thursday, presenting an agreement among the five coalition parties. The deficit will be 10 billion koruna bigger next year compared with the initial proposal of 230 billion koruna.

“We hope the deficit will be smaller in the end,” the finance minister said. He didn’t specify the debt instruments the state will use to raise the extra funds.

The natural disaster added another complication for the ruling alliance that has promised to reverse record borrowing from the pandemic era.

The cabinet first amended its original ambitions when Europe’s energy crisis forced it to spend more on aid to households and businesses, while Russia’s invasion of Ukraine also triggered an increase in defense spending.

Facing general elections in one year, the ruling parties have slid in opinion polls and drawn ire from labor unions and the opposition for previous measures such as curbing public sector wage growth and some welfare benefits.

(Updates with more details starting in the second paragraph.)

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