MNI INTERVIEW: Bulked-Up NRB To Boost Czech Growth - Nidetzky

The Czech Republic’s National Development Bank’s merger with other state agencies could deliver major economic benefits as it doubles its balance sheet by 2030, its Chairman Tomas Nidetzky told MNI, though private financing will be key.

The NRB will incorporate the Czech Export Bank in line with the government’s Economic Strategy 2.0, and discussions are ongoing on whether to integrate the Export Guarantee and Insurance Corporation, an option which Nidetzky said he favours.

This would create a single body akin to Germany’s KfW Development Bank or Poland’s BGK, which can use various financial tools alongside grants and subsidies drawn from European cohesion funds, he said in an interview.

LEVEL OF INVESTMENT

Those comparable national development banks invest around 2% of GDP annually, while the NRB only invests 0.11%, “so you can see the potential,” Nidetsky said. (See MNI EM INTERVIEW: Czech Growth Bet To Fall Short-Former Advisor)

The newly-enlarged NRB will support increased private-sector investment alongside a boost in public-sector funding, he added, noting that currently some companies are only viable with government subsidies, a situation he regards as unsustainable.

The NRB will achieve a balance sheet of CZK100 billion by 2030, he expects, noting that since he joined the bank in 2023 it has already risen from CZK30 to 50 billion.

Energy, the largest component in the NRB’s portfolio, will receive particular attention, alongside SMEs involved in bankable decarbonisation and digitalisation projects. (See MNI EM INTERVIEW: Nuclear Key To Czech Energy Strategy - Havlicek)

“At the same time, we are currently involved in new ways of financing, such as PPP projects for new highways, in consortium with construction companies and banks,” Nidetzky said.

“One issue there is that you have only a limited source of financing in Czech crowns, whereas if it is financed in euros from the EU then the government has to absorb the exchange rate risk, which makes it more expensive,” he said. “So, this is one example of where we can contribute.”

INTEREST RATES

Though high real interest rates have raised the cost of capital, Nidetzky, a member of the Czech National Bank’s Bank Board from 2016-2022, doubts whether the scale of plausible monetary easing this year could affect the scale of private-sector buy-in to NRB-backed projects.

“We may see up to two cuts of 25 basis points each, but I would expect them to stay at 3.5% for longer,” he said, despite pressure for stimulative policy. “I would not expect the 2W repo rate to go below 3% in the next 12 months.”

Another factor that could yield “significant additional investment” in the Czech Republic is reducing bureaucracy, he said. “That is currently a huge constraint.”

ECONOMIC STRATEGY

Nidetzky said he was optimistic for the success of Economic Strategy 2.0, given that it was a product of close cooperation with businesses and banks.

He sees “a relatively big overlap” with the previous government’s economic strategy, meaning cross-party consensus should be achievable. “That’s important because even a good strategy will take longer than one parliament to fully bear fruit.”

Nidetzky echoed recent criticism by the Fiscal Council of Prime Minister Andrej Babis’s new budget, saying that governments should stick to fiscal rules. But the Czech Republic’s relatively low public debt-to-GDP ratio of 44% means there is scope for a discussion around what those rules should be, he added. (See MNI INTERVIEW: Czech Fiscal Gap To Hit 3% GDP-Council Chair)

“If the government wants to invest public money in a way that is going to boost GDP over the longer term, then changing the rules could make sense. But if we just want to increase pension contributions, it doesn’t make sense.” (See MNI EM INTERVIEW: Czech To Ease Fiscal Rules-FinMin Schillerova)

A crackdown on the grey economy and tax evasion, coupled with efforts to find efficiency savings, will help to raise revenues to an extent, Nidetzky said, though unlikely by enough to finance the government's new strategy.

“What would make a significant difference is calculating income tax on the pre-Covid, gross salary model. That could raise around 150 billion crowns per year. But this is a very sensitive issue for the government.”