EUROPEAN COMMISSION Brussels, 19.7.2021 SWD(2021) 211 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Czechia Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Czechia {COM(2021) 431 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience, and policies for the next generation 2.3. Challenges related to the green and digital transition 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional, and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition 4.7. Lasting impact of the plan 4.8. Milestones, targets, monitoring and implementation 4.9. Costing

4.10 Controls and audit 4.11 Coherence ANNEX: Tagging / Costing



1.Executive summary The COVID-19 pandemic pushed Czechia’s economy into a deep recession in 2020, with GDP declining by 5.6% and the unemployment rate rising to 2.6%. As containment measures have been eased, a swift recovery is expected with 3.9% growth in 2021 and 4.5% growth in 2022, driven by both domestic spending and foreign demand. At the same time, some worsening in unemployment figures is expected – from 2.6% in 2020 to 3.8% in 2021 and 3.5% in 2022, with the most negative effects on vulnerable groups. Investments and reforms financed from the Recovery and Resilience Facility (RRF) should help the recovery particularly from 2022 onwards. The government budget deficit is expected to deepen further to 8.5% in 2021 due to sustained fiscal support. Czechia has made fast progress in catching up with the EU average in many areas in the years following EU accession, but population ageing, climate change and the digital transformation pose long-term structural challenges to the country’s economy and society. Maintaining productivity growth, the backbone of Czechia’s economic convergence, will require sustained structural reforms of education and training systems, innovation ecosystem and governance, targeted investment into infrastructures, and research and development (R&D). Moreover, Czechia is not yet sufficiently prepared for the green and digital transitions. Technological changes, such as the automation of production processes, are likely to have a significant impact on Czechia’s economy, given the exposure of its large manufacturing sector, including automotive production. In addition, the pension and the healthcare systems pose long-term sustainability risks to public finances and the economy. With a financial contribution of EUR 7.036bn, the implementation of the recovery and resilience plan (RRP) is expected to contribute significantly to the recovery, economic growth, and job creation in Czechia. All six pillars of the RRF are covered. Even though the plan focuses mostly on investments, the balance of the response appears broadly guaranteed. Investments are geared towards sustainable transport, energy, building renovation, digitalisation of public services and businesses, digital skills, childcare and social infrastructure and healthcare. The plan also includes a number of reforms which can help advance policies towards more efficient public administration, stronger competitiveness and cohesion. These reforms include streamlining and full digitalisation of procedures for granting construction permits, strengthening cancer screening programmes, digitalisation of education, strengthening support of disadvantaged schools, legislative changes to focus active labour market policies on the most vulnerable groups or long-term care reform including a deinstitutionalisation strategy. The Czech plan can be considered a comprehensive and adequate response to the structural challenges identified in the country-specific recommendations (CSRs) of 2019 and 2020. In the area of energy, Czechia plans to benefit from the RRF support to expand the use of renewable energy sources, in particular photovoltaics, improve energy efficiency in residential and public buildings and support replacement of coal-fired boilers in households. Sustainable transport shall be promoted by investment in railway infrastructure, clean urban transport and promotion of the use of low-emission mobility. Recommendations in the area of R&D shall be addressed by investment geared at strengthening public-private cooperation as well as innovation ecosystem and financial and non-financial support to innovative firms. Business environment should be improved by ample e-government measures, anti-corruption reforms and notably a comprehensive reform of the procedure for granting construction permits, which currently represent major obstacles to investment activity in Czechia. Key measures to address the labour market recommendations include upskilling and reskilling programmes to adjust the labour force to the needs of the industrial and digital transition, and construction of new childcare facilities for children below three years to foster the labour market participation of women. In the area of education, the plan aims at strengthening digital literacy of pupils and teachers, providing digital equipment to schools, while ensuring inclusive education through support to disadvantaged schools and tutoring of pupils. Healthcare recommendations are addressed through reinforced cancer prevention and rehabilitation care, development of an e-health portal aimed at fostering integrated care practices, and support to education in healthcare. Further complementary actions include measures to improve long-term care. The implementation of the plan is expected to contribute significantly to economic growth and job creation in Czechia, while strengthening economic, social and institutional resilience. It is expected to provide a boost to aggregate demand in the short to medium term, improving the cyclical position of the Czech economy, and thereby mitigating the adverse economic effects of the COVID-19 crisis. The labour market is also expected to benefit by 2026, compared to the scenario with the absence of RRF support. Potential growth is expected to be boosted significantly and in a long-lasting manner, contributing to reach and progress further on the European Social Pillar Action Plan objectives by 2030. This should facilitate the country’s transition to an economic model more focused on high-value-added activities, and which remains competitive and fair amid automation and digital change. The economic impact of the RRF could lead to an increase of Czechia’s GDP of between 0.8% and 1.2% by 2026. Around three-quarters of the expected positive impact on total factor productivity growth stem from human capital policies such as education and training, research, development, and innovation. With 41.6% of its allocation dedicated to climate-related measures, Czechia’s RRP focuses on climate mitigation, adaptation, protection of biodiversity and natural resources. Investments in renewable energy sources, modernisation of district heating distribution networks, replacement of coal-fired boilers and improving energy efficiency of residential and public buildings are expected to help Czechia achieve its 2030 energy and climate objectives and to support the transition to a circular economy. The implementation of investments in gas and biomass are subject to specific conditions and should be guided by the sustainability criteria for renewable energy sources in line with the Renewable Energy Directive to be adopted by Czechia. Investments in sustainable transport are expected to improve railway and clean mobility infrastructure, including electro-mobility. This is set to boost the overall mobility ecosystem, which is key for the Czech economy. All the measures planned to be financed by the RRF respect the ‘do no significant harm’ principle. With 22.1% of its allocation dedicated to digital measures, the plan is designed to contribute significantly to the digital transformation of the Czech economy and society. Development of digital skills is one of the objectives of the proposed education reforms, complemented by digital upskilling opportunities for working age adults. Moreover, the plan puts strong emphasis on digitalisation of the public administration, both as part of sectoral reforms of justice, construction permits and spatial planning, health care, as well as through horizontal measures aiming at increasing the quality and accessibility of eGovernment solutions, improving the efficiency in the public use of IT resources, fostering the “once-only” principle through seamless data exchange and strengthening cybersecurity. A reform of the governance model for the digital economy, together with investments into digital innovation hubs and excellence centres, top digital technologies and digital capabilities of companies (in particular SMEs), together with investments in digital transformation of the creative and cultural sectors should help the development of a digital ecosystem. Digitalisation of the Czech economy should be supported by investment in very high capacity and 5G networks. Czechia’s RRP entails structural changes to institutions and policies and as such can be expected to achieve a lasting impact. Digitalisation efforts across a wide range of institutions and public administration are expected to structurally enhance efficiency and improve the quality of public services. Streamlining and digitalisation of the procedure for granting construction permits is expected to considerably improve the business environment and unblock construction investment in many areas. Reforms of the judiciary governance framework and in the fight against corruption are set to have a lasting impact. Revision of school curricula is expected to generate a qualitative shift in increasing digital literacy. Important legislative reforms are also foreseen in the area of employment policy, childcare, long-term care and cultural and creative sectors. However, substantial structural reforms have been omitted in other policy areas, such as energy, digital infrastructure or R&D. Long-term sustainability of public finances is not addressed in the plan. Given the medium- to long-term nature of the challenge, the urgency to address it in the current economic situation is less evident than for the other recommendations. However, Czechia will continue to face medium-term risks for fiscal sustainability of public finances in the long term, mainly due to the costs of an ageing population. Improving long-term fiscal sustainability of the pension and health-care systems thus remains an important challenge to address in the coming years. In addition, the plan considers regional disparities only to some extent. The plan proposes a comprehensive, clear and realistic set of milestones and targets in line with the objectives of each component. The milestones and targets are relevant, with their number generally ranging between two and three per measure. In the first years of the plan implementation, milestones are the predominant monitoring device, often relating to the entry into force of the legal framework, launch of a support programme or the selection of projects. During the later years, the implementation of the projects is typically monitored using final output targets. The milestones and targets represent the key steps of the measures and realistically indicate whether the measures have been achieved. Hence, the proposed milestones and targets can be considered in line with the long-term objectives of the plan. The Technical Support Instrument (TSI) provides expertise in building capacities to implement the plan in several areas covered by the plan such as digitalisation of government, smart and intelligent mobility, digital infrastructure and public infrastructure investments, as well as for the overall implementation of the plan. Overall, costing information and supporting documents are provided to a medium extent and provide a sufficient basis to assess the reasonability and plausibility of cost estimates. At the same time, for certain measures information and supporting documents or other comparable data have been provided to a limited extent, which hampers the degree to which these specific cost estimates can be considered reasonable and plausible. Overall, synergies with other EU funding remain to be explained. For various measures, these synergies need to be carefully monitored at a project level. Provided the milestones mentioned below are met before the first payment request, the arrangements proposed in the recovery and resilience plan and the additional measures contained in the proposal for the Council implementing decision are adequate to prevent, detect and correct corruption, fraud and conflicts of interests, and the arrangements are expected to effectively avoid double funding. The Commission will in its risk based audits pay particular attention to potential conflict of interest that may arise from the use of blind trusts. In general, identification of the actors responsible for controls and audit in Czechia is explained in a sufficient way and the independence and segregation of functions of the audit body clearly set out, including how it is enshrined in Czech legislation. The national arrangement for the implementation of the recovery and resilience plan are set out in Government resolution No 467 of 17 May 2021. The Managing Council of the national recovery and resilience plan is the highest decision-making and approval body with the responsibility for the overall coordination and monitoring of the recovery and resilience plan. The Ministry of Industry and Trade, as the responsible authority for the recovery and resilience plan and its implementation, is responsible for coordination, monitoring and reporting of the recovery and resilience plan and is main point of contact for the Commission. Following recent audits on other EU programmes, there were identified serious deficiencies in the prevention, detection and correction of cases of conflict of interests at the Ministry of Industry and Trade. Dedicated milestones are included in the plan to ensure that these weaknesses have been addressed before the first payment request. Additional milestones to be fulfilled by the time of the first payment request are set requiring (i) a compliance review of the national procedures to ensure that the application of beneficial ownership in the context of the Facility’s internal control system is fully aligned with the definition of ‘beneficial owners’ as defined by Article 3, point 6 of Directive 2015/849, as amended by Directive 2018/843, (ii) the audit body to adopt an audit strategy ensuring the independent and effective audit of the RRF implementation, (iii) the RRF Managing Council to approve and implement procedures for the system to collect, store and process data in relation to all final recipients, including all beneficial owners as established by Article 3 of the Directive (EU) 2015/849 and procedures with the description how the records will be kept, and (iv) a repository system for monitoring the implementation of the RRF and for collection and storage of all the data referred to in Article 22(2)(d)(i) to (iii) of the RRF regulation shall be put in place and operational.

The plan presents a vision of a modernised Czechia centred around six key policy areas, which are implemented through 26 components. Synergies are ensured in thematic components (e.g. education and training components), as well as horizontally across several components (e.g. when applying energy efficiency requirements for public buildings renovations, digital transition of the public administration or the focus on healthcare in higher education, research and infrastructure investment). Assessment and rating of the Czech RRP under the criteria laid down in Article 19(3) of the Recovery and Resilience Facility Regulation in accordance with its Annex V. (1) Balanced Response (2) CSRs (3) Growth, jobs (4) DNSH (5) Green target (6) Digital target (7) Lasting impact (8) Monitoring &implem. (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A B B A B 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report Economic growth in Czechia reversed sharply in 2020 as the pandemic brought disruptions, particularly affecting the country’s large export-oriented manufacturing industry. Real GDP declined by 5.6% in 2020. The recovery is expected to take hold in spring 2021 and GDP is forecast to reach its pre-crisis level by the end of 2021. The macroeconomic and fiscal outlook continue to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. The COVID-19 pandemic and the corresponding containment measures resulted in a sharp fall in real output in 2020. The economic downturn was driven by a collapse in both foreign and domestic demand. Despite being supported by a resilient labour market, propped up by short-term work scheme “Antivirus” programme, as well as by other fiscal support measures, household consumption declined strongly. While the support measures cushioned the fall in retail sales, services, especially the hospitality sector, suffered larger losses. Investment and construction output also fell sharply due to increasing uncertainty about future developments. Private consumption is likely to remain the main driver of the economic recovery, reflecting a stable labour market, pent-up demand, and a declining trend of the high savings rate of households. The cuts in the personal income tax, with effect from the beginning of 2021, will also be supportive for private consumption. Due to some remaining disruptions in supply chains, investment is expected to recover at a slower rate. The trade balance is likely to be slightly positive both in 2021 and 2022, also reflecting the recovery of Czechia’s key trading partners. However, the negative impact of the pandemic on client-facing services such as hospitality, tourism and transport may last longer. While the unemployment rate in Czechia is expected to remain low, the expected increase in 2021 and 2022 may have a negative impact especially on persons in vulnerable situations. According to the Commission’s Summer interim 2021 Forecast, economic activity is expected to return to its potential growth over the forecast horizon, with GDP increasing by 4.5% in 2022. HICP inflation is forecast to slow to 2.7% in 2021 and to 2.3% in 2022, towards the national central bank’s monetary policy target of 2%. Price pressures are expected to ease due to anti-inflationary demand effects from the second wave of the pandemic amid subdued domestic economic activity. At the same time, muted wage growth is forecast to dampen increases in domestic labour costs. Income inequality in Czechia remains low relative to the EU-27 average. The income of the richest 20% of the population was around 3.5 times higher than the income of the poorest 20% in 2018, significantly lower than the ratio of 5 times in the EU. This ratio, monitored through the Social Scoreboard indicator accompanying the European Pillar of Social Rights, has remained stable since 2005, due to a relatively even increase in real disposable household income across the different income groups. Low inequality is due to market incomes (i.e. income received by households before taxes and social transfers) being distributed relatively equally. The gap between market income inequality and disposable income inequality (i.e. after taxes and transfers) is similar to the EU average, suggesting that the Czech tax-benefit system is in line with the EU in terms of reducing inequality. Czechia deployed extensive fiscal stimulus to cushion the downturn in 2020 and to support the recovery in 2021. The general government balance ended 2020 with a deficit of 6.2% of GDP. The result was driven by higher expenditures due to several government support programmes, including short-time work schemes like the ‘Antivirus’ programme and the ‘Compensation bonus for self-employed’, subsidies schemes for companies, as well as by declining corporate income tax and VAT collection linked to the drop in private consumption. The emergency fiscal measures to cushion the downturn in 2020, together with the pre-existing tax-benefit system, have absorbed about one third of the shock on household market incomes in Czechia, with the largest part of the effect due to monetary compensation schemes. Even with a partial economic recovery in 2021 and therefore an increase in tax revenues, the budget is likely to remain stretched in 2021 and 2022. New support programmes for companies affected by the lockdown (‘COVID-2021’ and ‘COVID-Uncovered costs’), as well as a cut in personal income tax could lead to a budget deficit of 8.5% in 2021, according to the Commission’s Spring 2021 Forecast. While the pace of growth in public debt in 2020-2022 is above the EU average, the size of public debt is still low compared to other Member States. The public debt-to-GDP ratio, which stood at 38.1% in 2020, is forecast to rise to 44.3% in 2021 and 47.1% in 2022. The banking sector before the crisis was stable, profitable, well capitalised, and not directly exposed to sovereign debt. While banks’ profitability might be impacted by the crisis, risks seem to be contained so far. The decline in economic activity and the associated deterioration in the financial situation of many households and companies might bring about an increase in the volume of non-performing loans, although for the moment the ratio of non-performing loans with deferred instalments is lower than expected. A reduction in the quality of banks’ loan portfolios should not jeopardize financial stability. Furthermore, the Czech central bank has already announced an increase in the countercyclical capital buffer, in force from July 2022. Around 90% of the banking system assets are foreign controlled (mostly of the EU origin). Current household debt is mostly in CZK, whereas one third of the corporate debt is in EUR. The central bank increased monitoring of subsidiaries of foreign banks and the use of prudential measures. Monetary conditions are accommodative. The insolvency framework is more robust compared to regional peers, but pre-insolvency regimes are missing. The macroeconomic scenario underlying the RRP is based on plausible macroeconomic assumptions. The macroeconomic scenario is in line with the latest forecast of the Ministry of Finance (MoF), which is also the basis for Czechia’s 2021 Convergence Programme. The convergence programme contains forecast for macroeconomic and fiscal fundamentals up to 2024. Its forecast was assessed by the Budget Forecasts Committee, which considered it realistic in terms of likelihood of compliance, in line with the law on budgetary responsibility rules. For the longer forecast horizon for Czechia’s RRP, necessary assumptions on economic, price and employment developments were adopted. Given the usual absence of cyclical fluctuations in the long-term, a constant growth rate was chosen for 2025 and 2026. Economic growth projections are slightly more pessimistic both for 2021 and 2022, when compared to the Commission’s Summer interim 2021 Forecast. This is mainly due to assuming a milder recovery in private consumption. The expected development of both the Czech labour market outcomes and price development are broadly aligned with the Commission’s view. According to the Czech RRP, economic growth is expected to moderate towards 2% in 2023 and beyond, driven by both domestic and foreign demand. According to the plan and in line with the Commission’s forecast, inflation is set to remain contained but slightly above the central bank’s inflation target. The MoF forecasts the general government deficit amounting to 8.8% of GDP in 2021 and 5.9% of GDP in 2022. In comparison, the Commission Spring 2021 Forecast envisages a budget deficit of 8.5% of GDP for 2021 and 5.4% for 2022. Table 1: Comparison of macroeconomic developments and forecasts 2019 2020 2021 2022 2023 2024 2025 2026 COM RRP COM RRP COM RRP RRP RRP RRP RRP Real GDP (% change) 2.3 -5.6 -5.6 3.9* 3.1 4.5* 3.7 1.9 2.1 2.0 2.0 HICP inflation (% change) 2.6 3.3 3.3 2.7* 2.4 2.3* 2.3 GDP deflator 3.9 4.2 4.2 2 1.8 2.1 1.7 2.0 1.9 2.0 2.0 Employment (% change) 0.3 -1.5 -1.5 -1.5 -1.1 0.3 0.1 0.3 0.1 0 0 Unemployment rate (%) 2.0 2.6 2.6 3.8 3.6 3.5 3.7 General government balance (% of GDP) 0.3 -6.2 -6.2 -8.5 -8.8 -5.4 -5.9 Government debt (% of GDP) 30.3 38.1 38.1 44.3 44.8 47.1 48.4 Source: Commission’s Summer interim Forecast (2021) (COM*), Commission’s Spring Forecast (2021) (COM), Czechia’s Recovery and resilience plan (RRP) 2.2.Challenges related to sustainable growth, cohesion, resilience, and policies for the next generation Smart, sustainable and inclusive growth The recovery of the Czech economy will depend on its capacity to diversify and lift the value added of its products and services. The growth model driving Czechia’s economic performance over the past ten years has been based on Foreign Direct Investment (FDI) and trade openness, supported by geographical proximity to core EU markets, wage competitiveness, and the inflow of EU funds. These factors have been boosting productivity and employment growth. However, the relatively low unemployment levels and bottlenecks in the labour market pushed wages upwards over the past years. Overall competitiveness and labour productivity have been reduced. Although the demand for labour has decreased in the pandemic, the structural issues remain, including those related to labour and skills shortages. In addition, a gap remains between large and small and between foreign-owned and domestic enterprises in terms of R&D expenditures and international competitiveness. Considering demographic trends, it will remain crucial to increase labour productivity, benefitting from automation, robotics, and digital technologies. As the Czech companies are highly integrated in global supply chains, moving to positions with higher added value is necessary for Czechia to remain competitive in comparison with its regional peers. Czechia’s future growth also depends on the ability to remain attractive for investments. Removing barriers to investments to support local entrepreneurship and SMEs, especially in R&D intensive industries, will be key. This includes barriers of (i) administrative nature (such as lengthy and heavy administrative procedures, issues pending regarding public procurement, the lack of predictability in business regulation, administrative and regulatory burdens, and unclear landscape of business support schemes), (ii) physical nature (lacking transport infrastructure) as well as (iii) labour and skills shortages mismatches, notably due to the too low number of graduates in science, technology, engineering and mathematics (STEM) disciplines and graduates’ inadequate training. Developing further the local system of entrepreneurship also needs to be supported by more advanced capital markets, as currently venture capital remains very limited and equity issuance is negligible, especially for pre-seed and seed high-risk enterprises. This is a particular concern in a recovery context, when fast growing enterprises, which tend to need equity finance more than others, carry a premium.

The modest performance of the public science base is a key bottleneck for the country. Despite an adequate level of public R&D funding, the scientific and technological performance remains modest. A key factor for inefficiencies is the high degree of fragmentation of the public research sector. It is essential to underpin the public R&D investment by structural and comprehensive reforms, such as setting up an efficient governance and coordination mechanism for research and innovation policy at national level, tackling the fragmentation of the public research sector and simplifying the regulatory framework for public-private cooperation and commercialisation of research results. Given the importance of the automotive industry for the Czech economy, the highly cyclical nature of this sector, its focus on exports and its dependence on supply chains pose a risk. In the medium to long term, risks are compounded by structural changes that the automotive industry will undergo, as emission standards are progressively tightened. The switch to alternative fuelled vehicles will require significant investment in technological development, in machinery and equipment, and in infrastructure, with possible impacts on employment, supply-demand relations, and energy prices. Social and territorial cohesion Czechia performs better than the EU average on the overall poverty or social exclusion indicators and the living standards are increasing, although disparities remain among groups of population and regions. Despite some improvement in the demand for low-skilled labour, the employment rate of the low skilled is still considerably lagging behind that of the medium and high skilled and there is also further scope to improve the employment outcomes of people with disabilities. Early school-leaving is high in socially disadvantaged families. Furthermore, gender inequalities in pay and employment remain high (see Box 3). Women aged between 25 and 49 with small children continue to be underrepresented in the labour market. The negative impact of parenthood on female labour market participation continues to be high, holding women back from advancing their careers. More reforms and investments are needed in terms of childcare, long-term care integrating social and health care, development of equitable education and training system, as well as in tackling the challenges associated with ageing, technological change, and environmental sustainability. Regional differences in socio-economic indicators persist and new challenges emerge. In particular, Northwest Bohemia and Moravia-Silesia, regions historically dependent on coal mining, lag behind the rest of the country in terms of productivity, unemployment rate, educational outcomes, share of people at risk of poverty, life expectancy, as well as air quality. These regions also suffer from a persistent population outflow and high school drop-out rates. The situation is particularly unfavourable in Northwest Bohemia where the living standard have diverged from the rest of the country over the last two decades. Conversely, richer regions achieve much better educational outcomes and have a greater innovation capacity, making them more attractive for private investment. Health, and economic, social and institutional resilience Czechia’s public sector performance and government effectiveness need to be further improved. Digitalisation of public services and reduced administrative burden at all levels of government remain key priorities. Czechia needs to increase the take-up of the digital public services and speed up the implementation of the national eGovernment strategy. A reform of the procedures to grant construction permits is necessary to shorten the length of the issuance of the construction permits while at the same time proper balancing of public interests needs to be safeguarded. Several important reforms of the Czech justice system are currently ongoing or in preparation, including on the selection procedure for judges, disciplinary regime for judges and prosecutors and introduction of the e-file. These reforms could increase the efficiency, independence and accessibility of the judiciary. Additional improvements can be brought also to public finances. Periodic spending reviews can help align the public expenditures with the new emerging economic priorities while the use of green budgeting would help manage the challenges of green transition. The long-term sustainability of the public finances will also need to be addressed especially in terms of cost of ageing. In this respect, the latest measures focused more on pension adequacy while the retirement age was capped at 65 and it has not been increased in line with the recommendations from the latest report on the pension system published by the government. In the context of the pandemic, a special focus is warranted on the performance of the health system and its sustainability. Population health outcomes are lagging but have positively converged toward the rest of the EU in the last decade. There are differences in access to healthcare. While overall self-reported unmet needs are one of the lowest in the EU (Box 3), there are regional disparities regarding the distribution of health care resources and health care personnel. Travelling distances appear to pose a moderately elevated challenge in accessing healthcare compared to the rest of the EU. In the medium term, Czechia could benefit from pressing ahead with the reform of primary care, implementing the new health strategy running until 2030, investing in care coordination and reduced hospitalisations, and further developments in e-health, including the enhancement of the digital competences of general practitioners and interconnection of monitoring and tracing systems. Policies for the next generation, children and youth, including education and skills Policies for the next generation, children, and youth, including education and training providing relevant skills need to be implemented to address future labour shortages. Preparing the workforce for progressive industrial automation and digitalisation of work patterns is a key element to achieve higher growth prospects, moving Czechia up in the global value chain. This will require investment in a broad set of skills, not only digital and technical but also transversal and non-cognitive ones. Efforts should be strengthened with respect to adult learning where Czechia lags behind in terms of participation, institutional infrastructure, and funding. Inclusive quality education and training, as of an early age and throughout people’s careers, and enhanced education are essential to recap all the transformative power of digital technologies and contribute to the European skills agenda, the European Pillar of Social Rights, and the European Education Area. However, participation in early childhood education care is low, in particular for under 3-year-olds (6.3% against the EU average of 35.3% in 2019). Moreover, educational outcomes are strongly influenced by socio-economic background and inter-school differences are pronounced. To date, education outcomes for many Roma continue to be a cause for serious policy concern. The attractiveness of the teaching profession has been limited in Czechia, due to low salaries and low prestige. The teaching profession needs to be promoted through better career development opportunities and trainings. Empowering teachers with digital skills would provide support in changes brought by future digital transition. 2.3.Challenges related to the green and digital transition An overarching objective of the RRF is to support the twin transition. Czechia is among the less advanced Member States in achieving carbon neutrality and in reaping the benefits of the digital transition, as measured in the Commission’s assessment of Czechia’s 2020 National Energy and Climate Plan (NECP) and the 2020 Digital Economy and Society Index (DESI). To achieve climate neutrality and successful digitisation of the society and economy, Czechia will need to increase its ambitions. This section recalls where Czechia stands in achieving targets related to the green and digital transitions. Green dimension The plan should contribute to the green transition and at least 37% of the financial allocation needs to contribute to climate objectives. The measures in the plan shall contribute to achieving the 2050 climate neutrality objective, and the 2030 energy and climate targets, while considering Czechia’s national energy and climate plan. The measures should also contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy as appropriate, while ensuring that nobody is left behind. Although Czechia made progress in decoupling environmental pressures from economic activity and improving environmental infrastructure, it still has a mixed performance in implementing environmental policies effectively. Further progress towards sustainable development will require implementation of a package of “green reforms” to phase out a low-carbon economy, ensuring coherence between environmental and energy policies, and pricing carbon. There are currently no new carbon and energy tax measures in place that would effectively support the climate transition. In terms of key environmental challenges, the air quality, circular economy, and water management sector (addressing floods and droughts) stand-out as major environmental investment needs and form the elements of a green-reform package (including a fiscal element).



GHG emissions Czechia has some of the highest greenhouse gas (GHG) emissions per capita in the EU. This is mostly due to significant reliance on coal, a highly industrialised economy, extensive transport sector and rather inefficient use of energy. Compared to 2005, GHG emissions declined by 4% in 2018. Additional effort is, however, needed to meet the 2030 emission reduction commitments. The main objective of Czechia is to reduce the total GHG emissions by 14% by 2030 compared to 2005 under the Effort Sharing Regulation. Greenhouse gas emissions could be significantly reduced by investing in renewable energy and local energy community networks. This would also reduce air pollution which is above the EU average and contributes to premature deaths in the most polluted areas. The concentrations of air pollutants in certain zones, notably in urban areas, are continuously above the limit values, including the daily limit values for inhalable particles matter. The level of air pollution is influenced mainly by the combustion of solid fuels in household heating facilities and traffic. Regarding mobility, a further upgrading of key sections of Czechia’s infrastructure can boost the shift towards a more climate-friendly and sustainable mode of transport and support the modal shift. A modernised passenger rolling stock can increase the attractiveness and the service quality for citizens. At local and urban level, a modern and attractive public transport should help to reduce emissions and improve the quality of life. The existing investment gaps are mostly linked to the infrastructure quality and standards, in particular the infrastructure requirements defined in TEN-T Regulation. Further investment needs to be urgently provided to active mobility infrastructure, such as bike lanes, and taking steps to increase safety of vulnerable road users on the existing infrastructure. There is also a high need for clearer strategy and investment to move to zero/low emission vehicles both in terms of increase in the number of electric vehicles and publicly available recharging infrastructure. The shift towards low-emission road transport should be supported by appropriate carbon tax measures and regulatory arrangements.

Energy efficiency The energy intensity of the Czech economy remains one of the highest in the EU, more than double the EU average. There is a significant potential to improve energy performance of the public, commercial and residential building sector. Further investments are required in particular for building renovation, including thermal retrofitting, as well as for the improvement of thermal performance of district heating networks. Progress towards better energy performance of buildings is slower than in the rest of the EU. Czech authorities would benefit from increasing specific expertise and ability to prepare and implement complex renovation projects. General awareness of the benefits of energy efficiency shall be targeted. Support for project preparation, flexibility of financing in particular combination of various financial instruments and promoting energy efficiency and renewable energy financing with the help of financial institutions would increase the interest into energy efficiency projects. Investing in energy efficiency improvements in households (building renovation and optimising their lifecycle performance in line with circular economy principles, including thermal retrofitting), private sector (particularly SMEs) and public sector would reduce energy intensity, prolong life expectancy of built assets, and increase Czechia’s cost competitiveness. Renewable share Renewables in gross final energy consumption have been stagnating for many years as a large portion of electricity in Czechia is still generated from coal and gas. The share of renewables increased to 16.2% in 2019 (compared to the 13% target in 2020). Czechia has set a 20.8% share of energy from renewable sources in gross final consumption of energy in 2030 as a renewable energy contribution to the EU renewable energy target for 2030. This level of ambition is below the share of 23% in 2030 that results from the formula contained in Annex II of the Energy Union Governance Regulation. The increase of variable renewables foreseen by 2030 is insignificant and Czechia is not planning measures for the integration of large amounts of renewable electricity, even though the latter could partly replace coal and gas in a cost-effective way. At the same time, the support of biomass-based renewables is not sustainable. The support of bioenergy, which implies increased use of biomass, is problematic in Czechia. Czechia does not respect the “no debt rule” under Land Use, Land Use Change and Forestry (LULUCF), while current investment plans are heavily reliant on future large-scale biomass heating and transport, while an assessment of the trajectories and sustainable supply of biomass, and its impacts on the LULUCF sinks and biodiversity as well as impact on air quality shall only be carried out. The infrastructure and the access rules shall support an important development of decentralized small renewable sources, in particular renewable electricity generation. Smart grids would enable free further resources by supporting the development of demand response mechanisms. Specific attention should be paid to stranded assets and the need to invest in a future-proof infrastructure. At component level, measures under Pillar 2 ‘Physical Infrastructure and Green Transition’ have the greatest impact on the implementation of the green transition.



Table 2 below gives an overview of Czechia’s objectives, targets and contributions under Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. Table 2: Czechia’s national targets and contributions regarding energy and climate National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) 4% (2018) 9% -14% As in ESR National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 16.2% (2019) 13% 22% Unambitious (23% is the result of RES formula) National contribution for energy efficiency: Primary energy consumption (Mtoe) 40.4 (2018) 43.3 41.43 Low Final energy consumption (Mtoe) 25.3 (2018) 23.9 23.65 Modest Level of electricity interconnectivity (%) 26.6% (2018) 29.6% 44.1% N/A Source: Assessment of Czechia’s national energy and climate plan, SWD (2020) 902 final. Environmental protection and climate change As regards the main environmental challenges, Czechia is on track meeting the EU’s 2020 recycling target. However, more effort is still needed to comply with the recycling targets set for the post-2020 period as the landfilling remains a particularly important waste treatment option. Air quality remains a significant problem. Although the national scheme for exchanging boilers in individual households, supported by the Cohesion Policy funds is being implemented in all regions, domestic solid fuels combustion together with the old car fleet remains the largest source of air pollution. Particulate matter, nitrogen dioxide, ozone and benzo(a)pyrene cause the main concern and health risks for the Czech citizens. The most significant pressure on rivers is from anthropogenic pressure and diffuse pollution from agriculture is the most significant pressure on groundwater bodies. The main pressures on nature and the Natura 2000 network remain the changes in agricultural land management (both the abandonment of land and intensification of farming), forestry and intense fishpond farming. The expected progress resulting from planned measures is low as significant pressures such as hydromorphological pressures are not addressed. Due to anthropogenic changes, damage to the soil by compaction, water and wind erosion and the loss of biodiversity, water retention capacity of land has been worsening in Czechia to current deficit. Following several years of drought, Czechia has been experiencing devastating bark beetle calamite since 2018. To ensure flood and drought prevention and protection, improving the water retention ability of the landscape is a key element. While Czechia is planning to apply several close to nature measures, a strategy to systematically support measures, nature-based solutions in floods and droughts management as priority measures through comprehensive planning are not yet implemented. Digital dimension Czechia ranks 17th in the Digital Economy and Society Index 2020 (DESI). Based on data prior to the pandemic, Czechia’s strongest dimension was the integration of digital technologies. The score was high thanks to a solid performance in e-commerce. At the same time, the Czech companies reported difficulties in finding digital experts. The government was rolling out fixed very high-capacity networks and new digital public services but take-up remained limited. Chart 1: Performance of Czechia in the Digital Economy and Society Index (DESI 2020) Note: EU aggregate corresponds to EU28, based on 2020 DESI report. Czechia ranks 24th in the connectivity dimension. Despite a very high coverage of fast internet (97%), fixed very high-capacity networks cover only 33% of the households. In addition, there is a significant divide between urban and rural areas where the coverage is only 6% of rural households. The take-up of ultra-fast broadband services is curbed by low demand caused by several factors (e.g. subscription price, population purchasing power, age, education). To improve connectivity, more investment is needed in very high-capacity networks, accompanied by appropriate demand-side measures. Czechia finalised the 5G auction and awarded frequencies to 5 operators including the 3 main Czech players.

Digital transformation is on track, but advanced digital skills need to improve to address the growing need of organisations and companies to quickly go through the digital transformation. The role of education and training systems at all levels – from the primary and secondary to the tertiary – will be essential. Czechia also needs to train teachers, better equip schools, support new university programmes in advanced technologies and ensure equal access to digital learning (also for disadvantaged students). The government also needs to stimulate adult training and encourage companies to provide on-the-job training on digital skills and intensive digital courses for employees to up/reskill them on the job. Despite some progress in terms of rolling out digital public services, Czechia ranks 22nd in DESI index for eGovernment. The COVID-19 pandemic showed the government’s inability to use the full potential of digital technologies to make the economy and society more resilient. The quality and inter-connection between the current services remain low: the legislation does not fully reflect the shift to digital, users' interface is too complex, ICT procurement is often overpriced, systems tend to have cybersecurity gaps, and citizens and businesses are reluctant to use public services digitally. Czechia needs to increase the take-up by increasing citizens’ and businesses’ trust in the existing and new eGovernment services and by making them more user friendly and interoperable, ideally through a central Public Administration Portal. Part of the actions related to the improvement of eGovernment are reflected in the plan. Linked to eGovernment, the digitalisation of and improvement of access to justice via electronic means constitutes a reform priority for Czechia. Digitisation of businesses and in particular SMEs needs support. The COVID-19 crisis showed that the ICT sector is relatively mature and the start-up scene in this field is active. Czechia is a leader in the video gaming or cybersecurity industry. However, traditional businesses struggle to embrace the digital transformation. Technologies can be a fundamental tool for economic recovery by favouring the shift towards sustainable manufacturing. A major obstacle to the digitisation of companies is the lack of digital technology experts, particularly for SMEs. Companies cannot find sufficiently qualified workers, especially in areas such as automation and data analytics. Czechia needs to roll out policies and initiatives that will help companies find and hire digital experts and support excellence centres such as digital innovation hubs to help digitise the economy. These centres should also offer sufficient technological capacities such as supercomputers or cloud infrastructure. Czech businesses would benefit if the country would join digital multi-country projects such as potential Important Projects of Common European Interest (IPCEI) that would provide new digital capacities and expertise in areas such as quantum, cybersecurity, blockchain or microelectronics. Potential IPCEI would also allow to focus investments on a few strategic industrial value chains to support the green and digital transition as well as an open strategic autonomy of the Czech economy. The authorities are committed to encourage solutions based on artificial intelligence.

Box 1: Progress towards the Sustainable Development Goals Eurostat for monitoring progress towards the SDGs in an EU Figure: SDGs and key dimensions of the recovery and resilience plan The objectives of the Sustainable Development Goals (SDGs) are integrated in the European Semester since the 2020 cycle. This provides a strong commitment towards sustainability in coordination of economic and employment policies in the EU. In that respect, this section outlines Czechia’s performance with respect to SDGs with particular relevance for the four dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the RRPs (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the Facility could further accelerate the progress on the SDGs.

Green transition Czechia’s record in green SDGs is mixed (see also Section 2.3.1). Despite recent initiatives, meeting its climate and environmental targets requires additional efforts. Final energy consumption remains high and energy productivity is significantly below the EU-27 average. While energy import dependency is below the EU-27 average, the share of renewable energy in gross final energy consumption remains low. Even though improvements have been made, the greenhouse gas emission intensity of energy consumption remains significantly above the EU-27 average, suggesting improvement potential on SDG 7 ‘Affordable and clean energy’ and SDG 13 ‘Climate action’. Fairness There has been some progress made in most fairness-related SDGs, in particular on poverty (SDG 1 “No poverty”), well-being (SDG 3 “Good health and well-being”) and decent work (SDG 8 “Decent work and economic growth”). The employment rate of 82.4% (age group 20-64) in 2020 was one of the highest in the EU. Czechia performs well with respect to the risk of poverty or social exclusion, with only 12.5% of the population facing such a risk in 2018, the lowest in the EU. There were clear improvements in avoidable mortality, work and traffic accidents, and exposure to particulate matter. The gender pay gap has decreased slightly in recent years but 18.9% stood above the EU-27 average (of 14.1%) in 2018. Despite recent improvements, the employment rate of women is significantly below that of men, mainly attributable to caring responsibilities of women. Challenges persist on SDG 4 ‘Quality education’, where post-secondary educational attainment and participation in adult learning remain below the EU average. It is estimated that due to ongoing technological change, about 37% to 69% of low-skilled jobs could be automated in the EU in the near future, raising the demand for better educated and better skilled workers. Compared to other Member States, Czechia performs very well in terms of the share of early leavers from education and training, despite recent deterioration in the disadvantaged regions. On SDG 10 ‘Reduced inequalities’, there remain persistent and relatively high gaps between Czech nationals and non-EU citizens. Moreover, even if poverty statistics suggest improvements in recent years, the COVID-19 crisis is expected to have increased vulnerability and associated poverty risks. School closures and the switch to digital learning are also expected to have affected students coming from vulnerable backgrounds. Digital transition and productivity Czechia’s R&D spending is on an upward trajectory but still below the EU-27 average. Number of patent applications has also been increasing but remains much lower compared to the EU-27 average. Therefore, performance on SDG 9 ‘Industry, innovation and infrastructure’ is mixed and further progress would benefit Czechia’s economic development. Similarly, investments have been lagging – accelerated investments in digital infrastructure would support the economic recovery and help reduce Czechia’s gap with other countries in the coverage of very high-capacity networks. While basic digital and software skills are widespread, specific, and advanced digital skills are weaker, with clear shortages in the ICT specialist workforce. Macroeconomic stability Czechia’s economy performed very well before the COVID-19 crisis, as reflected by good outcomes for SDG 8 ‘Decent work and economic growth’. Effective justice systems are essential for the investment climate and the sustainability of long-term growth, and a prerequisite for the fight against corruption. The perception of judicial independence among the general public and companies is average. Overall, 51% of both the general public and companies consider that the independence of the courts and judges in Czechia is either ‘very good’ or ‘fairly good’ in 2021 as reported in the 2021 EU Justice Scoreboard and the 2021 EU Rule of Law Report. Czechia can rely on strong institutions, reflected in its relatively high score for SDG 16 ‘Peace, Justice and strong institutions’. While Czechia performed very well on employment, certain disadvantaged groups could be better integrated in the labour market. Despite its slight decline, the gender pay gap remains among the highest in Europe. 3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan The recovery and resilience plan of Czechia is a comprehensive response to the consequences of the COVID-19 crisis, targeting the main challenges identified and the systemic weaknesses of the Czech economy. It builds on Czechia’s global development vision “Strategic Framework 2030” based on the following pillars: (1) promoting entrepreneurship and innovation; (2) implementing growth-enhancing measures by focusing on research, development and innovation and strengthening infrastructure resilience; (3) increasing the efficiency of the use of natural resources and preventing the damage caused by the consumption of natural resources and the production of pollutants. The Czech RRP comprises 26 components in six areas: digital transformation, physical infrastructure and green transition, education and labour market, institutions, regulation and business support, research, development and innovation, health and resilience of the population.

Czechia requests RRF funding of almost CZK 180 billion, corresponding to EUR 7.036 billion, which is very close to the maximum financial contribution of EUR 7.07 billion. The plan also includes measures worth CZK 11.3 billion (EUR 0.44 billion) to be funded from national sources. The plan envisages forward-looking measures facilitating the digital transformation and green transition of the Czech economy. The plan puts forward ambitious measures for the digital transformation of the Czech economy taking a comprehensive approach, which contributes to the development of the national layer of the European digital ecosystem. Such measures include the expansion of eGovernment and eHealth services, the improvement of very high capacity and 5G networks, digital innovation, digital skills, digital finance, and the digitalisation of industry. The plan aims at increasing the share of sustainable modes of transport, increasing energy saving and reducing the emission of greenhouse gases while contributing to climate mitigation and adaptation objectives, to the preservation and restoration of nature and to the implementation of circular economy solutions. Investments in renewable energy sources, modernisation of district heating distribution networks, replacement of coal-fired boilers and the improvement of energy efficiency of residential and public buildings are expected to help Czechia achieve its 2030 energy and climate objectives and support its transition to a circular economy. The plan coherently addresses several identified weaknesses of the economy, notably the industry’s exposure to the challenges posed by automation and the green transition, the low level of R&D performance and innovation, skill mismatch, low labour market participation of women and the low-skilled and inefficient public administration. Reinforced support of schools with a higher share of pupils with weak socio-economic background and IT equipment for disadvantaged pupils and students shall help address inequalities in education and training. Increasing childcare capacities shall foster labour market participation of women. Healthcare recommendations are addressed through reinforced cancer prevention and rehabilitation care, development of an eHealth portal, which is expected to foster integrated care practices, and support to education in healthcare. Further complementary actions include measures to improve long-term care. These investment plans will be supported by a key reform of the procedure for granting construction permits, including digitalisation of the process, significantly reducing the length of the process. Both the eGovernment and anti-corruption measures are set to improve the business environment even further. Reforms of the judiciary should improve the efficiency and transparency in the areas of courts, judges, prosecutors and bailiffs. Table 3. Components and associated costs (only those financed from the RRF) Number Component Name Cost EUR (million) Digital transformation 1 1.1 Digital services for citizens and businesses 112 2 1.2 Digital government systems 277 3 1.3 Digital high-capacity networks 227 4 1.4 Digital economy and society, innovative start-ups and new technologies 224 5 1.5 Digital transformation of enterprises 196 6 1.6 Acceleration and digitalization of building permit process 57 Physical infrastructure and green transition 7 2.1 Sustainable and safe transport 943 8 2.2 Reduction of energy consumption in the public sector 325 9 2.3 Transition to cleaner energy sources 262 10 2.4 Developing clean mobility 192 11 2.5 Building renovation and air protection 632 12 2.6 Nature protection and climate change adaptation 542 13 2.7 Circular economy and recycling and industrial water 141 14 2.8 Brownfields 131 15 2.9 Promotion of biodiversity and drought issues 117 Education and labour market 16 3.1 Innovation in education in the context of digitalisation 191 17 3.2 Adaptation of the capacity and orientation of school programmes 517 18 3.3 Modernisation of employment services and labour market development 886 Institutions, regulation and business support 19 4.2 New quasi-equity instruments to support entrepreneurship 39 20 4.3 Anti-corruption measures 21 4.4 Enhancing the efficiency of the public administration 1 22 4.5 Developing the cultural and creative sectors 214 Research, development and innovation 23 5.1 Excellent R&D in priority areas of public interest in health care 196 24 5.2 Support for R&D in companies and the introduction of innovations into business practice 126 Health and resilience of population 25 6.1 Increasing health system resilience 153 26 6.2 National plan to strengthen oncological prevention and care 335 TOTAL 7036 3.2.Implementation aspects of the plan Consistency with other programmes The National Energy and Climate Plan (NECP) serves as both an analytical basis and a reference framework for the proposed RRP reforms and investments. The Czech RRP explains how the green components (2.2, 2.3 and 2.5) are in line and contribute to the objectives of the NECP. The RRP mirrors the strong emphasis of the NECP on reducing greenhouse gas emissions, especially in the transport sector, enhancing energy efficiency measures, increasing the use of the renewable energy sources and complements these by measures fostering climate adaptation through increasing the resilience of forests against climate change and enhancing the water retention of forests. The RRP measures are designed to contribute to ambitious targets to achieve carbon neutrality in the EU by 2050 and to the objective of reducing GHG emissions by 2030 by 30% compared to 2005. According to the NECP, the emission intensity of GDP in the Czech Republic is above EU average, due to the higher share of industry in the GDP and the higher emission intensity of transport. In response, the transport components of the RRP aim at investment in electric transport and smart mobility in both urban and rural areas. The NECP priorities of achieving an optimal energy mix and promoting the use of Renewable Energy Sources (RES) are reflected in the RRP RES component 2.3, which aims at lowering the level of coal combustion for heat and electricity production by increasing the efficiency of district heating distribution and reducing greenhouse gas emissions and pollutants. To achieve energy efficiency targets, the NECP emphasises the need to renovate the national stock of residential and non-residential buildings, both public and private, which is in line with the RRP components pursuing the objective of at least 30% of the primary energy savings, and financing large-scale investments aimed at tackling the low levels of energy efficiency of buildings. Based on a recent JRC study across various European cities, a renovation rate of 3% in the residential sector is needed for reductions in heating and cooling energy use of up to 32.5% by 2030. The RRP is designed to be complementary to the European Structural and Investment Funds in the programming period (2014-2020) as well as to the Cohesion policy funds in the programming period (2021-2027). As the Partnership Agreement (PA) has not been finalised, the RRP explains main synergies at the strategic level (between priority areas of the Cohesion Policy funding and RRP components), which are then elaborated in individual components. A well elaborated overview table of complementarities, based on available information, is included in the RRP Annex. The RRP recognises important synergies with the Cohesion policy and stresses that complementarities and potential overlaps will be systematically and continuously assessed at different levels of the implementation (e.g. strategic, programme and project levels) including through a dedicated mechanism to avoid “double funding”). When prioritising investment for the RRF funding, the following criteria were used: i) meeting the RRF criteria, in particular on the green and digital targets, ii) timing of the measures, iii) geographical and thematic scope of the projects. In view of the phase-out of lignite and black coal in the Northwest Bohemia and Moravia-Silesia, Czechia will adopt a territorial Just Transition Plan (JTP) to ensure a just transition to those structurally disadvantaged regions. Support from the Just Transition Mechanism and the Cohesion policy funds will be complemented by several components under the RRP, focused notably on building renovation, replacement of household boilers, renewable energy sources, sustainable transport and mobility, climate adaptation, rehabilitation of industrial land, digitisation of SMEs and RDI supporting economic diversification, digital infrastructure, pre-school child facilities and social services infrastructure. The RRP outlines its contribution to the Youth Guarantee initiative. The highest contribution to youth employment is provided by the education and labour market components. Component 3.1 will support the necessary competences and skills of young people so that they are able to respond to the challenges linked to twin transition. Reforms and investments under component 3.2 will create a supportive ecosystem to support youth employment by better preparing the universities for distance learning. Reforms and investments under both components will reinforce support to schools with a higher share of pupils with weak socio-economic background, and IT equipment for disadvantaged pupils and students shall help address inequalities in education. Increasing childcare capacities shall foster labour market participation of women. National arrangements for the implementation of the plan To ensure effective implementation, a dedicated RRP implementation structure was introduced, which will be supervised by the Managing Council of the national recovery and resilience plan. The implementation structure is composed of the Delivery Unit (DU) which is the Department of Coordination of the National Recovery Plan at the Ministry of Industry and Trade, tasked with the main implementation and coordination responsibilities, Component Owners (individual ministries responsible for implementation, 11 in total), intermediaries and beneficiaries. Tasks and competences are detailed in a specific Government resolution No 467 on the RRP, which was adopted by the Czech Government on 17 May 2021. The Ministry of Finance will carry out the function of the audit body being responsible for auditing the implementation of the plan. Administrative capacity will gradually increase in the second half of 2021 mainly by strengthening the existing structures. Gender equality and equal opportunities for all The RRP contains a series of measures that are expected to address the country’s challenges in the area of gender equality and equal opportunities for all. The proposed measures are concentrated under pillar 3 (Education and Employment components). As regards gender equality, the RRP foresees to increase labour market participation of women with small children through ample investment in facilities for children below the age of three and a legislative amendment to ensure sustainable financing of low-age childcare and its adequate coverage in the regions. A legislative reform is foreseen to better target active labour market policies at the most vulnerable groups. The part of the plan addressing inequalities in education includes reinforced support of schools with a high proportion of children from disadvantaged socio-economic backgrounds, training and mentoring of teachers dealing with heterogeneous groups of pupils, and additional tutoring for children at risk of failure due to the prolonged school lockdown. The plan also envisages investment in digital equipment of schools to ensure access to learning for disadvantaged pupils and students. The situation and needs of people with disabilities are addressed in several parts of the plan, including in relation to the new construction code, renovation of buildings and their improved accessibility, digitalisation, eHealth and social care. The challenges faced by older people are also addressed, in particular through improving the quality and accessibility of the long-term care, social and health systems. Measures addressing the situation of Roma in Czechia are largely absent from the plan, except for component 3.3 (employment services and labour market development) despite the fact that EU Strategic Framework for Roma equality, inclusion and participation identifies Czechia as one of those Member States, which are encouraged to ensure that the available funding effectively reaches the Roma and invited to be ambitious in terms of promoting the socio-economic integration of marginalised communities such as the Roma. Stakeholder consultation The Czech authorities engaged in a wide range of consultation activities in the preparatory phase of the RRP. The consultation was heavily affected by the second wave of COVID-19 pandemic and largely organised online (virtual meetings or written comments). The Ministry of Industry and Trade organised a set of round tables in November and December 2020 on the different pillars of the plan, involving the social partners and local government representatives. The draft RRP was also discussed in the Government Council for Sustainable Development or the Science, Research and Innovation Council. The Czech RRP was subject to a formal consultation in April 2021, allowing for comments and suggestions by a variety of relevant stakeholders, including the social partners. Several debates for the general public were also organised. Social partners, local government representatives and NGOs claim they could be even more consulted on the preparation of the RRP. Most comments in the consultation process were related to digitalisation, support to the cultural sectors, revitalisation of brownfields, cycling infrastructure or climate protection measures. Several comments from the public and stakeholders have been incorporated into the plan’s measures during its preparatory phase. This included for instance increasing the allocations for measures supporting digital transformation of enterprises or cultural sectors and strengthening the gender equality dimension in some components of the Plan, following the comments of the Human Rights Envoy. During the implementation of the RRP, an active consultation and involvement of social partners and key stakeholders will be ensured through their membership in the Committee of the RRP, which was set up as a platform, created primarily for the cooperation of all relevant actors involved in the implementation of the plan. The Committee will be responsible among others for monitoring and supervising the achievement of progress, i.e. meeting the milestones and targets of the individual components, for publicity activities, for assessing the reports on the implementation. All members of the Committee shall be involved in building and developing partnerships, communication platforms and cooperation with other stakeholders important for the implementation of the RRP.

Implementation and digital security self-assessment Czechia presented a preliminary security self-assessment of investments in digital capacities funded by the Recovery and Resilience Facility. Existing cyber security measures and effective tools will be used to defend critical infrastructure and modern technologies with security applications. In component 1.3 the Czech plan makes reference to the EU toolbox for the Cybersecurity of 5G networks. Implementation of measures under components 1.1 and 1.2 (Digital public services and administration system), 1.3 (high capacity networks), 1.4 (digital economy and society) and 1.5 (digital transformation of enterprises) will support the building of Europe’s strategic autonomy in the field of information and communication systems and digital services, which is in line with the priority of strengthening the EU’s digital sovereignty. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. The Technical Support Instrument (TSI) provides expertise in building capacities to implement the Plan in a number of areas covered by the plan such as digitalisation of government, smart and intelligent mobility, digital infrastructure and public infrastructure investments, as well as for the overall implementation of the plan. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. Cross-border and multi-country projects The RRP support of cross-border projects is relevant. It includes participation of Czechia in 5G networks and the application of 5G-ecosystems across the Member States. It contributes to strengthening the network of European Digital Innovation Hubs, creates a new European AI excellence centre, it will invest in Quantum Communication Infrastructure and it will support the European Blockchain Service Infrastructure. It also includes a direct support programme for the investments to enterprises, including SMEs, through specific calls for projects selected for the potential IPCEI on Microelectronics and Connectivity, particularly in the area of microprocessors. Communication strategy The RRP broadly outlines the Czech communication plans. The objectives of the communication strategy are in line with the RRF Regulation and aim to raise awareness about the RRP’s contribution to the Czech and European recovery and to the twin transition. The described communication strategy objective is to ensure awareness raising, of the financial contributions from the RRF, as well as ensuring effective communication of benefits to the general public and other target groups. The communication strategy is a live document, which will be updated and refined annually by detailed plans, following the state of play of the achievement of milestones and targets across all activities. The annual communication plans will include monitoring progress in the year, implementation deadlines and allocations for the activities/projects. The basic principles applied in the field of publicity will be Transparency and openness; “Effectiveness, efficiency, economy; Neutrality and avoidance of political influence; Responsibility, honesty.” There is no further specification of these actions. Czechia plans to target the general and professional public. Czechia plans to use the following communication channels: Websites and social networks; Interviews in print and radio media, and online publications, Public seminars/webinars representing NPOs; NPO media campaign; and press releases. It is essential that the described communication plan be fully developed and implemented. Coordination between EU and national authorities, should be pursued to maximise the impact and effectiveness of communications. State aid State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute state aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and state aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU . When state aid is present and it requires notification, it is the duty of the Member State to notify state aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Czechia in the RRP cannot be deemed a state aid notification. In as far as Czechia considers that a specific measure contained in the RRP entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Czechia to ensure full compliance with the applicable rules. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Czech RPP aims at a comprehensive and balanced response to the consequences of the pandemic crisis, while tackling the main systemic socio-economic challenges (as detailed in section 4.3 of this document). As such, it makes an explicit reference to the six fundamental pillars of the Recovery and Resilience Facility pursuant to Article 3 of the Recovery and Resilience Facility Regulation. It presents a global vision of an innovative economy, supporting economic growth through green and digital transitions. The overarching objective of the plan is to re-launch sustainable growth and increase the quality of life in Czechia. The focus is on five key public policy areas: green economy, education, research and innovation, health, public administration with digitalization. Table 4: Coverage of the six pillars of the Facility by Czechia’s RRP components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, economic, social and institutional resilience Policies for the next generation 1.1 Digital services for citizens and businesses ● ○ ○ ● ○ 1.2 Digital public administration systems ● ○ ○ ● ○ 1.3 High-capacity digital networks ● ○ ○ ○ 1.4 Digital economy and society, innovative start-ups and new technologies ● ● ○ 1.5 Digital transformation of enterprises ● ● 1.6 Acceleration and digitalization of the building process ● ○ ○ 2.1 Sustainable and safe transport ● ○ ○ 2.2 Reduction energy consumption in the public sector ● ○ 2.3 Transition to cleaner energy sources ● ● ○ 2.4 Clean mobility ○ ● 2.5 Building renovation and air protection ● ○ ○ ○ 2.6 Nature protection and adaptation to climate change ○ ○ ○ 2.7 Circular economy, recycling & industrial water ● ● 2.8 Brownfields revitalisation ● ● ○ 2.9 Promotion of biodiversity and fight against drought ○ ○ 3.1 Innovation in education in the context of digitalisation ● ● ○ ● 3.2 Adaptation of school programmes ○ ● ● ● 3.3 Modernisation of employment services and labour market development ● ● ○ ● 4.2 New quasi-equity instruments to support entrepreneurship and development of the ČMZRB as a national devel. bank ● ● 4.3 Anti-corruption reforms ● 4.4 Enhancing the efficiency of public administration ● 4.5 Development of the cultural and creative sectors ○ ● ○ ○ 5.1 Excellent R&D in the health sector ● ● 5.2 Support for R&D in companies and the introduction of innovations into business practice ● ● 6.1 Increasing resilience of the health system ○ ● 6.2 National plan to strengthen oncological prevention and care ○ ● Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar Green transition The plan provides a comprehensive overview of challenges related to climate and environment and outlines the contribution of reforms and investments to achieving the EU’s carbon neutrality target by 2050. Czechia is a highly industrialised economy, with energy and industrial processes contributing to overall greenhouse gas emissions of 81% (of which 96% is related to the combustion of fuels). Czechia ranks among the Member States with the highest average air concentrations of dust particles in the EU, resulting largely from aging industrial technologies and burning of solid fuels in households. The plan also recognizes the need for strengthening of ecosystems amid the deteriorating climate conditions. Given the magnitude of green challenges in Czechia, the share of 41.6% of the allocation attributed to climate-related actions appears only partially satisfactory. The plan aims to support the transition to a circular economy in Czechia. This shall be achieved through measures preventing waste, increasing recycling infrastructure, reducing secondary raw material wastage, increasing the share of recycled materials in products, and increasing the raw material security of Czechia through the continuous and uninterrupted availability of raw materials. Moreover, the component focuses on sustainable water management, including measures aimed at saving and recycling water and optimising the use of water in businesses. The transition to the circular economy shall help increase the resilience of Czechia against both environmental and economic threats. The plan aims at increasing energy efficiency, reducing energy consumption and a smoother transition to cleaner energy sources in the household sector. This entails the energy renovation of buildings, including the construction of new buildings, the use of renewable material in buildings and the replacement of heating sources into solid predominantly fossil fuels with low-emission sources and emission-free sources in the residential sector.

The strategic planning of reforms and substantial investments shall contribute to greening of transport. Transport is one of the sectors with the highest emissions growth in Czechia. The plan aims to contribute to the digitalisation of transport, electro-mobility in rail transport, increasing the share of rail transport in freight and passenger transport, increasing the importance of active mobility in cities, improving traffic safety, and reducing the impact of traffic on the environment and public health. The issue of alternative propulsion in road transport and urban bus transport is also addressed. These new measures are expected to significantly contribute to growth and jobs in CZ and the EU, in particular due to the focus on investments in rail and road infrastructure. The complementarity of the rail infrastructure investment projects with the TEN-T network could further strengthen EU-wide green growth. Expanded and upgraded railway infrastructure will enhance the resilience of transport systems, with wider beneficial impacts for other EU MS in terms of reduced vulnerabilities of logistic chains, as seen during the pandemic. The recovery plan shall contribute to the long-term resilience of ecosystems to climate change. A number of environmental measures aim at creating a framework for more efficient management of watercourses. The promotion of natural habitats shall ensure resilient forest ecosystems, contributing inter alia to greater biodiversity and climate change mitigation. These measures aim at making life more attractive in villages and effectively contributing to preventing the depopulation of the Czech countryside. Digital transformation The plan’s diagnosis of Czechia’s challenges in the area of digital transformation is relevant and accurate. Czechia particularly lags behind in terms of digitalisation of public services, standing close to the end of EU Member States’ ranking in this area. The plan also rightly identifies the need for developing the digital skills of citizens, strengthening connectivity and creating an innovative environment. The Czech RRP assigns to digital challenges 22.1% of the overall RRF allocation. The outlined actions particularly aim at supporting small and medium-sized enterprises (SMEs) by improving eGovernment, focusing investment on digital transformation, in particular on high-capacity digital infrastructure, 5G and technologies, on clean and efficient production, ensuring access to finance for innovative businesses, notably in early (pre-seed and seed) stages, and improving public-private R&D cooperation in selected priority areas (e.g. aeronautics, culture). The plan focuses on completing the digitalisation of public administration, which started with the approval of the Digital Czechia strategy, enhancing on cybersecurity and resilience in particular in the health sector, which has already proven to be crucial before the COVID-19 outbreak. The reforms and investments are rightly targeting the improvements in digital skills and expanding the opportunities for learning. Increasing digital skills is perceived as a key prerequisite for digitalising the economy. The plan aims at reforming the education and training system to strengthen digital and information literacy, and IT skills. This shall be achieved by revising the curricula for primary and secondary education in order to reinforce IT education, adapt it to the latest trends and foster digital skills across the educational areas, promote digital skills of teachers and invest in digital equipment in schools. The plan also aims at addressing the digital divide, exacerbated by the prolonged school lockdown, by setting up a fund for mobile digital devices at the disposal of disadvantaged pupils and students. The ultimate objective of the component is to adapt education and training to the changing needs of the labour market, address the lack of digital experts and advanced digital skills across the labour force by supporting new appropriate university programmes, and ensure long-term employability. Digital investments are expected to contribute to ambitions to modernise Czechia nearly across all components of the RRP. Supporting the digitalisation of industry, the use of technologies and the emergence of an interconnected and long-term sustainable national layer of the European digital ecosystem are expected to support the digital transition of particularly small and medium-size enterprises through digital technologies. Increased digitalisation in construction proceedings is set to improve the business and investment climate in Czechia. Digitalisation of transport, electro-mobility in rail transport, increasing the share of rail transport in freight and passenger transport should lead to improved traffic safety and reduced impact of traffic on the environment and public health. The proposed reform of the Czech education system should strengthen digital and information literacy and reinforce IT education, adapting it to the latest trends and foster digital skills across the educational areas. It shall also promote digital skills of teachers and improve the level of digital equipment in schools. The plan also aims at addressing the digital divide, exacerbated by the prolonged school lockdown, by setting up a fund for mobile digital devices at the disposal of disadvantaged pupils and students. Transformation of universities to adapt to new forms of learning and changing needs of the labour market is expected to facilitate transition to new, mainly digital forms of learning. This is addressed through investment in digital equipment and technologies and training of university staff in digital skills and modern teaching methods. The plan is set to also stimulate a digital shift in the cultural and creative sectors and its integration within the innovation ecosystem. Smart, sustainable and inclusive growth The plan presents the targeted policy actions across all relevant policy areas related to smart, sustainable and inclusive growth. Smart growth will be promoted particularly through actions targeting research and innovation and improvements in educational outcomes through curricular reform and enhanced teachers’ education. The plan aims at strengthening the inclusion through addressing the negative impact of children’s socio-economic background on educational outcomes. As regards the sustainable growth, the plan’s key investment initiatives should inter alia contribute to a cleaner energy mix, industrial decarbonisation and greening of public transport. The plan reacts to the deterioration of the labour market in view of COVID-19 crisis. Due to the contraction in economic growth and the end of government support schemes, the unemployment rate is expected to increase to 3.8% in 2021. While the overall unemployment rate remains low, job losses are expected to occur mainly in selected service sectors, with a large share of low-skilled workforce. The post-pandemic recovery and job creation should be particularly supported by rolling out investments into green construction sector activities (both building and renovation), renewables, nature protection, sustainable transport, and digital infrastructure. The modernisation of hospitals and clinical processes contribute to attractiveness of jobs in the health sector. The reform and investments are expected to contribute to strengthening competitiveness through research and innovation. The plan rightly identifies the productivity-related challenges for Czechia and the need for innovation-driven growth focused notably on Smart specialisation priority areas, while aiming at closing the gap vis-à-vis the EU in terms of average level of living standard. Delivering a higher quality of the public science base, promoting academia-business linkages and enhancing commercialisation of research results and knowledge and technology transfer is set to kick-start innovation and make businesses more competitive. Additionally, the financial and non-financial support to innovative enterprises, especially SMEs, and help with internationalisation of domestic firms as well as research actors shall facilitate further economic growth and competitiveness. The decarbonisation investments shall strengthen the competitiveness of the industrial sector, through supporting the inevitable process of green transition. The reforms are designed to also contribute to a well-functioning and more resilient Single Market with strong SMEs. The SMEs are set to particularly benefit from a strong demand impulse triggered by investments leading to internal sources of growth and fostering innovation, as well as from a direct support to the business sector. On the basis of the Digital Czechia Strategy, the Innovation Strategy 2020-2030 and the National AI Strategy, Czechia plans to create a connected and sustainable digital ecosystem through digital transformation of enterprises. This ecosystem should encompass new and emerging technologies such as artificial intelligence, high performance computing, cybersecurity or cloud services, ensuring that all actors in the system interact comprehensively and offer them proactively vis-à-vis other actors in order to meet the needs of the market. Social and territorial cohesion The plan recognises the significant economic and social disparities within Czechia. The plan mainly reflects the uneven quality of the education system in several Czech regions and related conditions for upskilling and reskilling. Quality education and the development of human capital are prerequisites for economic and social development. Advanced digitalisation and the associated transformation of the education system aims at increasing the share of jobs in higher value-added sectors and, conversely, reducing the share of jobs in the secondary sector of the economy, especially in heavy industry. The plan clearly sets out that social and territorial cohesion shall be also supported from other EU sources than the RRF, notably from the Cohesion Policy funds. The authorities provide consistent references to other types of EU funding for a number of important policy areas. Such examples outside the scope of the plan include, for instance, the rolling out the broadband infrastructure (European Regional Development Fund), support to greening of the heat and power sector (Modernisation Fund) and transition of the coal regions, such as the Northwest Bohemia and Moravia-Silesia regions (Just Transition Fund). The plan addresses the cohesion challenges primarily through reforms and investments in education and training, health and digitalisation. In education, the attention is given to supply of quality education and inclusiveness of the system, in view of pending health and social inequalities. The acquisition of digital equipment for schools across Czechia is expected to open the opportunities for pupils from poorer regions and disadvantaged socio-economic backgrounds. The optimization and infrastructure investments into the hospital network is set to reduce the regional disparities and improve the access to quality healthcare. The expansion of digital services and high-speed broadband shall boost possibilities for distance learning and teleworking across Czechia, thus contributing to reducing regional and social disparities. Health, and economic, social and institutional resilience The plan rightly identifies the significant challenges for the Czech health system on the background of pandemic situation. The plan aims at strengthening the resilience of the health system by investing in healthcare infrastructure and improving the education of health workers in acute care. With respect to healthcare infrastructure, the objective is to increase the availability and quality of rehabilitation care for patients in critical situations (post-acute care episodes), which proved insufficient during the pandemic. More in general, rehabilitation care capacity in Czechia is below that in the rest of the EU. Also, the component aims at addressing the lack of highly specialised diagnosis tools and treatment of serious cardiovascular diseases, including transplant medicine. With respect to the education of healthcare personnel, systemic measures and investment are foreseen to tackle the growing shortage of healthcare workers. The latter complement measures previously initiated in Czechia with more direct relevance to the nursing profession. The Plan also aims at securing excellent research in selected health areas (e.g. infectious diseases and virology, cancer, metabolic diseases, cardiovascular diseases, neuroscience and socio-scientific research studying the socio-economic impacts of systemic health risks): the establishment of national research authorities that shall ensure better overall coordination and reduce fragmentation in the priority areas will support further the resilience of the country. The plan intends to overcome educational gaps caused by the pandemics through investments into digitalization and the knowledge economy. The proposed measures target the digitalization of primary and secondary schools, particularly through improving the digital skills of pupils and teaching staff. The investments shall allow for support to pupils and appropriate learning also during the pandemic restrictions. The reforms of tertiary education are designed to enable universities to adapt faster to changing economic and social developments, as well as to pandemic situations. The innovative transformation of companies shall contribute to adjustment of Czech industry to challenges of the post-pandemic economy. A new national strategy for the development of digital skills is set to support adult learning, helping them to acquire new skills amid the progressing digitalization of the society. The green investments should contribute to Czechia’s strategic autonomy and strengthen the resilience in view of external shocks. The increasing share of renewables in energy mix and energy efficiency investments are expected to reduce the share of domestic lignite or hard coal burnt or imported fossil fuels. The support for cleaner energy sources under the Czech plan is set to contribute to the diversification of the energy mix and therefore increases energy security.

Policies for the next generation, children and the youth, such as education and skills The plan identifies the main socio-economic challenges for the next generation. A large share of children has only a limited access to childcare education. To improve labour market dynamics and working conditions, the plan puts forward targeted support for the digitalisation of schools, including support for teachers’ skills and individualised actions for vulnerable groups to overcome the digital divide. Actions to foster equal opportunities and access to the labour market include an amendment of the Employment Act to strengthen active labour market policies targeted at vulnerable groups. The Czech authorities plan to tackle the educational challenges through a dedicated system reform and reinforced support to disadvantaged schools and pupils. The skills of teaching staff should improve through incentives to pursue lifelong professional development and support programmes to better prepare them to deal with heterogeneous groups. The changes in the support system for pupils with special educational needs are expected to enable all children to develop their full educational potential. The planned investments and reforms shall improve the digital skills of young people as well as to increase the awareness on the effects of climate change and technological transformation of the economy. Taking into consideration all reforms and investments envisaged by Czechia, its recovery and resilience plan represents, to a large extent a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Czechia into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V to the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester Czechia’s Recovery Plan addresses a significant subset of the structural challenges identified in the country-specific recommendations (CSRs) of 2019 and 2020. Naturally, the degree to which the Plan’s different components target — and can potentially resolve — the underlying policy challenges varies. This is not only because some components of the Plan carry a greater importance in terms of financial investment and stringency of accompanying reforms, but also because the magnitude and severity of the initial challenge as identified by CSRs differs. Chapter 1 of the plan presents a useful mapping of CSR challenges onto the plan’s various sub-components. The table is both accurate and complete in terms of covering all CSRs as well as all relevant elements of the plan’s components. The table thereby illustrates the significant degree of CSR coverage achieved by Czechia’s RRP, and this table serves as a useful cross-reference for the CSR assessment presented in the section at hand. Although addressing most other of Czechia’s CSRs on structural issues very well, the plan offers a mixed response to fiscal policy and public finances challenges. Czechia has achieved substantial progre