COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2019-02-27
Institutions: European Commission, Secretariat-General
Subjects: Czechia, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.2.2019  SWD(2019) 1002 final  COMMISSION STAFF WORKING DOCUMENT Country Report Czech Republic 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 

3.2.  Financial sector 

3.3.  Labour market, education and social policies 

3.4.   Competitiveness reforms and investment 

Annex A: Overview Table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment Guidance on Cohesion Policy Funding 2021-2027 for the 

Czech Republic 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators - Czech Republic 

Table 2.1: 

Annual assessment of the 2018 Country Specific Recommendations for the Czech 

Republic 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth and breakdown 

Graph 1.2:  Gross national income per person (PPS) as a percentage of the EU average 

1 

3 

6 

13 

16 

16 

20 

24 

32 

44 

49 

50 

56 

61 

12 

14 

50 

51 

52 

53 

54 

55 

6 

6 

 
 
 
 
Graph 1.3: 

Potential GDP and drivers 

Graph 1.4: 

Investment by sector as a share of GDP 

Graph 1.5: 

Unemployment and job vacancies 

Graph 1.6: 

Regional disparities in the Czech Republic 

Graph 1.7: 

Nominal unit labour cost (breakdown) 

Graph 1.8: 

Current and capital accounts 

Graph 1.9: 

Private sector indebtedness 

Graph 2.1:  Overall multiannual implementation of 2011-2018 CSRs to date 

Graph 3.1.1: 

Tax revenues by main taxes compared to EU average in 2017 (in % of total taxation) 

Graph 3.2.1:  Financial liabilities growth 

Graph 3.2.2:  Private credit growth 

Graph 3.2.3:  Overvaluation gap 

Graph 3.2.4:  Deflated house prices 

Graph 3.2.5:  Housing supply (4 quarters aggregate) 

Graph 3.3.1:  Labour market developments 

Graph 3.3.2:  Employment rate by age and education level in 2017 

Graph 3.3.3:  Age groups at risk of poverty or social exclusion in 2017 

Graph 3.4.1:  GVA per worker and the productivity gap (in PPS) 

Graph 3.4.2:  Breakdown of contributions to GVA growth in the manufacturing sector 

Graph 3.4.3:  Value-added of foreign-controlled firms as a share of total value added in specific 

manufacturing sectors in 2015 

Graph 3.4.4: 

Investment in the total economy 

Graph 3.4.5:  Motorway network in the Czech Republic 

Graph 3.4.6:  Highly-cited publications vs public R&D intensity as a share of GDP 

Graph 3.4.7:  Change in GDP per inhabitant in 2007-2016 compared to the change of the EU 

average in the Czech and neighbouring NUTS 2 regions 

Graph 3.4.8:  Change in GDP per inhabitant vs change in R&D intensity in the Czech NUTS 2 regions 

LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in the Czech Republic 

Box 3.1.1: Effects of the potential income tax reform 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.1: Investment challenges and reforms in the Czech Republic 

7 

8 

9 

9 

10 

10 

11 

13 

16 

20 

21 

21 

22 

23 

24 

26 

29 

32 

32 

33 

34 

35 

36 

39 

40 

15 

19 

25 

43 

2 

 
 
 
 
 
80 %.  Unless  relevant  measures  are  taken  to 
support 
certain 
employment 
underrepresented  groups,  the  scope  for  further 
employment increases is limited.  

the 

of 

The  overall  picture  of  relatively  low  inequality 
and  the  continued  rise  in  living  standards 
masks  some  increasing  regional  disparities. 
While disparities are lower than in some other peer 
countries,  the  distribution  of  opportunities  and 
challenges  remains  concentrated  within  certain 
regions.  In  general,  poorer  areas  have  lower 
productivity,  higher  gender  inequality,  increasing 
levels  of  homelessness,  high  indebtedness  and 
more  acute  demographic  challenges.  On  the  other 
hand,  richer  regions  perform  much  better  in 
education  and  have  a  higher  capacity  to  innovate, 
making them more attractive for investment. 

in 

for 

focus 

future 

education 

investments 

technological 

Focusing 
and 
upskilling,  domestic  innovation,  and  transport 
and digital infrastructure would strengthen the 
potential  for  long-term  growth.  Labour  and 
demographic  constraints 
in  a  manufacturing-
intensive  economy  warrant  more  investment  in 
education  and  upskilling  to  ensure  the  country  is 
prepared 
changes. 
Affordable  childcare  and  tailored  active  labour 
market  policies,  to  help  people  find,  stay  in  or 
return  to  work,  require  particular  attention  to 
achieve  inclusive  growth.  If  combined  with  an 
increased 
innovation, 
productivity  could  be  raised  across  the  entire 
business  spectrum,  including  small  and  medium-
sized  enterprises.  Subpar 
railway  and 
broadband networks appear to exacerbate regional 
disparities  and  hinder  private  investment.  More 
effort is also needed to tackle the challenges posed 
by  adverse  climate  and  environmental  effects,  in 
particular  for  air  quality  and  water  management. 
Annex D identifies key priorities for support by the 
the 
European  Regional  Development  Fund, 
European Social Fund Plus and the Cohesion Fund 
over  2021-2027  period  in  the  Czech  Republic, 
building  on  the  investment  needs  and  challenges 
outlined in this report. 

domestic 

road, 

on 

EXECUTIVE SUMMARY 

Continued  economic  growth  offers  a  valuable 
opportunity  to  intensify  structural  reforms  (1). 
Since  2004,  the  country  has  undergone  a  sizeable 
process  of  catching  up  with  the  EU  average. 
Nonetheless,  a  number  of  unaddressed  structural 
weaknesses  may  hinder  further  progress.  Growth 
prospects  would  benefit  in  particular  from  better-
infrastructure,  human 
in 
targeted 
capital  and  innovation,  reducing  administrative 
burden  and  addressing 
labour  shortages. 
Alleviating these challenges through well-designed 
structural 
the 
potential  for  long-term  growth  and  speed  up  the 
country’s  convergence  towards  the  level  of  the 
higher-income economies. 

reforms  would  help 

investment 

increase 

the 

Economic growth remains solid but may soften 
somewhat in the coming years. According to the 
Commission  2019  Winter  Forecast,  real  GDP 
growth  expanded  strongly  by  4.3 %  in  2017,  but 
slowed to 2.9 % in 2018. Household consumption 
remained  the  main  driver  of  growth,  propelled 
mostly  by  significant  wage  increases.  Net  exports 
are  expected  to  have  a  neutral  impact  on  GDP  in 
the  coming  years.  A  high  reliance  on  exports  and 
on foreign direct investment are key vulnerabilities 
for  a  small  open  economy  such  as  the  Czech 
Republic.  Addressing  strategic  investment  gaps 
therefore, 
productivity 
may 
contribute to sustainable growth. 

increase 

and, 

finances  are  sound  but 

Public 
long-term 
sustainability  is  less  favourable.  The  general 
government  balance  is  expected  to  remain  in 
surplus until at least 2020, supported by growth in 
taxes, allowing public debt to fall to around 30 % 
of  GDP.  By  contrast,  long-term  sustainability  is 
worsening due to higher costs related to ageing.  

The  performance  of  the  labour  market  is  very 
good  but  labour  shortages  are  becoming  more 
acute,  spurring  wage  increases.  Over  the  past  7 
years,  the  employment  rate  has  risen  to  nearly 

(1)  This report assesses the Czech Republic’s economy in light 
of  the  European  Commission’s  Annual  Growth  Survey 
published  on  21 November 2018.  In  the  survey,  the 
Commission  calls  on  EU  Member  States  to  implement 
reforms  to  make  the  European  economy  more  productive, 
resilient and inclusive. In so doing, Member States should 
focus  their  efforts  on  the  three  elements  of  the  virtuous 
triangle  of  economic  policy  —  delivering  high-quality 
investment,  focusing  reforms  efforts  on  productivity 
growth, inclusiveness and institutional quality and ensuring 
macroeconomic stability and sound public finance. 

3 

 
 
                                                           
Executive summary 

The Czech Republic has made some progress (2) 
in  addressing 
country-specific 
the  2018 
recommendations (CSRs).  

lack  of  affordable  and  quality  social  housing  and 
the  personal 
indebtedness  of  certain  socio-
economic groups and homelessness are increasing. 

There has been some progress in: 

  Reducing 

the 

administrative  burden  on 
investment  and  in  addressing  weaknesses  in 
public procurement practices. 

  Strengthening  the  capacity  of  the  education 
system  to  deliver  quality  inclusive  education 
and in fostering the employment of women, the 
low skilled and the people with disabilities. 

There has been limited progress in: 

  Removing the bottlenecks hampering research, 

development and innovation. 

There has been no progress in: 

 

Improving 
the 
public finances. 

long-term  sustainability  of 

the  Europe  2020  strategy, 

Regarding progress in reaching the national targets 
under 
the  Czech 
Republic  currently  meets,  or  is  on  track  to  meet 
targets in  most areas. This includes  the respective 
targets  for poverty,  social exclusion, employment, 
renewable  energy,  greenhouse  gas  emissions  and 
tertiary education. More progress will be needed to 
increase  the  energy  efficiency  target,  reverse  the 
increasing  rate  of  early  school  leaving  and  to 
achieve the target of 1 % of GDP for public R&D 
expenditure.  

indicators  of 

The Czech Republic performs relatively well on 
the 
the  Social  Scoreboard 
supporting the European Pillar of Social Rights. 
The labour market is strong and the country is one 
of  the  best  performers  in  addressing  the  overall 
risk  of  poverty  and  the  social  exclusion  rate. 
However, the country shows a low participation in 
early  childhood  education  and  care.  Gender 
inequalities  in  terms  of  pay  and  employment 
remain high due to parental leave rules and a lack 
of  affordable  childcare  and 
long-term  care 
facilities. While the poverty rate  is low, there is a 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
overview table in the Annex. 

is  presented 

in 

4 

Key structural issues analysed in this report, which 
point  to  particular  challenges  for  the  Czech 
Republic’s economy, are the following: 

to 

the 

ensure 

  Recent  pension  measures  have  helped  to 
improve  the  adequacy  of  pensions  but  lack 
safeguards 
long-term 
sustainability  of  public  finances.  Pension-
related  policy  measures  taken  in  recent  years 
have  worsened 
long-term  budgetary 
outlook by around 2 percentage points of GDP 
by 2070. Expected gains in life expectancy are 
into  account  and 
taken 
not  automatically 
corresponding  adjustments  to  the  retirement 
age  are  at  the  government’s  discretion.  The 
projected  rise 
in  age-related  spending  on 
healthcare also puts long-term sustainability of 
public finances at risk. Further consolidation of 
the  hospital  sector  and  investment  in  primary 
and  integrated  care  could  improve  the  cost-
effectiveness of the healthcare system. 

  The affordability of housing is deteriorating 
due  to  increasing  prices.  Both  house  prices 
and  the  volume  of  mortgage  lending  have 
grown fast since 2016 on the back of economic 
expansion,  strong  wage  inflation  and  supply 
constraints.  House  prices  are  estimated  to  be 
slightly overvalued but  still below  the level of 
significant  risk.  In  this  context,  the  Czech 
National  Bank  has  issued  macro-prudential 
recommendations,  which,  however,  are  not 
binding.  Furthermore,  the  central  bank  has 
reacted  to  the  increased  activity  in  the  credit 
market 
by 
inflationary 
increasing the base rates 7 times in 16 months. 

pressures, 

and 

the 

and 

leave  rules, 
the 

  Despite  its  good  performance,  the  Czech 
labour  market  has  a  high  level  of  labour 
shortages  and  persistent  structural  issues. 
Parental 
lack  of  formal 
caring 
childcare 
responsibilities  are  often  taken  up  by  women 
are  all  factors  that  prevent  women’s  labour 
market  participation. 
the 
underused  labour  market  potential  of  women, 
various  socio-economic  factors  and  inefficient 
targeting  of  active  labour  market  policies  are 

In  addition 

fact 

that 

to 

 
 
                                                           
Executive summary 

holding  back  low-skilled  people,  older  people 
and  people  with  disabilities  from  entering  the 
labour market. Furthermore, integrating foreign 
workers  into  the  Czech  labour  market  is 
challenging. 

been  growing  at  a  relatively  slow  pace. 
Therefore, 
support 
investment  needs 
technology  uptake  and  increase  the  innovation 
performance  of  firms,  notably  the  domestic 
small and medium-sized enterprises. 

to 

  Most  regions  have  unused  potential  and 
require  tailored  support  based  on  their 
specific  needs.  While  richer  regions  suffer 
from  housing  unaffordability  and  pressures  on 
the  suburban  transport  networks,  the  poorest 
areas  face  weak  connectivity,  demographic 
pressures,  social  exclusion,  and  low  focus  on 
innovation.  Tailored  measures  could  address 
these 
positive 
and 
education  outcomes,  foster  upskilling  and 
improve the infrastructure. 

disparities 

increase 

  A 

and 

legislation 

large  administrative  and  regulatory 
burden  may  hurt  further  investment.  Fast-
complex 
changing 
administrative  procedures  are  seen  by  most 
firms as  major obstacles to further investment, 
particularly  in  less-developed  regions.  A  new 
construction  law  is  being  prepared  in  order  to 
reduce  the  complexity  of  issuing  building 
permits.  Tax  compliance  costs  for  businesses 
appear to have increased. 

limited 

  Despite progress, public sector performance 
and  government  effectiveness  continues  to 
be  a  challenge.  Administrative  capacity  is 
terms  of  strategic 
in 
particularly 
planning.  Public  procurement  has  seen  some 
improvements,  but  certain  practical  challenges 
remain.  Progress  in  adopting  anti-corruption 
measures  and  in  ensuring  independence  of  the 
civil service seems to have slowed. 

  Low investment, the limited attractiveness of 
the  teaching  profession  and  socio-economic 
inequalities are negatively affecting the level 
of  education  achieved. There  is  a  shortage  of 
teachers  due  to  low  job  prestige,  low  salaries 
compared  to  other  professions  and  limited 
development  opportunities.  The  early  school 
leaving  rate  has  increased,  albeit  from  low 
levels, 
socio-economic 
inequalities in school outcomes. The impact of 
the  reform  on  inclusive  education  has  been 
positive  overall  but,  so  far,  it  remains  modest 
on  the  participation  of  children  from  some 
disadvantaged  socio-economic  backgrounds  in 
mainstream education. 

reflecting 

rising 

  The 

on 

the 

can 

lower 

Czech 

investment 

its  different 

in 
increase 

transport 
infrastructure 
regional 
disparities. Being a transit country places great 
Republic’s 
demands 
infrastructure  and 
forms  of 
transport.  However,  investment  in  transport 
infrastructure is below EU average levels. The 
completion of the European transport corridors 
is  far  from  being  finalised  and  the  suburban 
transport 
remains  deficient, 
limiting  the  ability  to  commute  for  work  and 
housing affordability. Weak transport links also 
deter  business  activity,  particularly  in  remote 
regions. 

infrastructure 

  The  country  has  not  yet  created  a  fully 
functioning  innovation  ecosystem  based  on 
domestic  research  and  development.  The 
country  remains  a  moderate  innovator  at  EU 
level,  despite  an  increase  in  research  and 
development  intensity.  This  may  be  linked  to 
public  investment  lacking  a  coherent  strategy 
to  increase  the  modest  research  performance 
and  improve  cooperation  between  the  private 
sector and the academia. Productivity is driven 
mostly  by  large  foreign  companies,  while 
domestic  firms  lag  behind  in  terms  of  value 
factor 
added  generation.  Moreover, 
productivity,  indicating  how  efficiently  capital 
and  labour  are  being  used  in  production,  has 

total 

5 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

Economic  growth  remains  solid  in  the  Czech 
Republic.  After  the  strong  expansion  in  2017 
(4.3 %),  real  GDP  growth  slowed  down  in  2018 
(2.9 %), according to the Commission Winter 2019 
Forecast. Domestic demand was the main driver of 
in  2018,  with  household 
economic  growth 
consumption propelled by rapid increase in wages 
and private and public investment. By contrast, net 
exports  provided  a  negative  contribution  in  2018, 
after 2 years of positive balance. The slowdown in 
external demand together  with the appreciation of 
the koruna contributed partly to this development. 

Graph 1.1: 

Real GDP growth and breakdown 

to 

Large  inflows  of  foreign  direct  investment  (FDI) 
have played a leading role in the process, creating 
jobs  and  boosting  productivity  growth.  The 
convergence  process  slowed  down  between  2008 
and  2013,  when  the  Czech  Republic  was  more 
affected by the global crisis than other countries in 
the  region.  It  then  resumed  in  2013  as  both  real 
increase. 
wages  and  productivity  started 
Between 2000 and 2017 the gross national income 
(GNI) (3)  per  person,  adjusted  for  purchasing 
power  parity,  rose  from  70.2 %  to  82.7 %  of  the 
EU average, a real convergence of 12.5 pps (Graph 
1.2).  Economic  policies  that  encouraged  both 
foreign  and  domestic  investment,  combined  with 
significant  financial  support  through  EU  funds, 
underpinned  the  convergence  process.  While  the 
catch-up pace was lower than in other Central and 
Eastern  European  countries  (particularly  in  the 
Baltic region), the Czech Republic is one of those 
closest  to  the  EU  average  in  terms  of  economic 
development and living standards. 

Graph 1.2:  Gross national income per person (PPS) as a 
percentage of the EU average 

Source: AMECO, Commission Winter  2019 Forecast 

Growth  may  slow  over  the  coming  years  but 
economic convergence is set to continue. In 2019 
and 2020 it is projected to reach 2.9 % and 2.7 %, 
respectively  (Commission  Winter  2019  Forecast). 
The  current  expansionary  cycle  that  started  at  the 
end of 2013 will likely continue in 2019 and 2020, 
when  GDP  growth  is  estimated  to  converge 
towards 
its  potential  (Graph  1.1).  Domestic 
demand is set to be the key driver of growth, as the 
contribution of the external sector  will be  neutral. 
Growth  projections  are  around  1 percentage  point 
(pp.)  above  those  for  the  euro  area,  stressing  the 
robustness  of  the  convergence  process  in  the 
medium term.  

The  Czech  Republic  has  undergone  a  sizeable 
catch-up  process  relative  to  the  EU  average. 

6 

Source: Ameco, European Commission 

As a small and open economy, labour shortages 
and  uncertainties 
in  global  demand  could 
potentially  constrain  future  growth.  The  Czech 
Republic  highly  depends  on  potential  frictions  in 
global  trade  and  the  economic  development  of 

(3)  GNI  provides  a  more  accurate  picture  of  national  income 
available  for  domestic  economic  activities  than  GDP  in 
countries with a significant stock of FDI, such as the Czech 
Republic, in which FDI-related earnings outflows can drive 
a gap between GDP and GNI. 

-8-6-4-20246803040506070809101112131415161718'19'20'%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthForecast-51535557595SICZEELVLTHUPLROSKEU28 = 100200020082017 
 
 
 
                                                           
 
some  of  its  main  trade  partners  (e.g.  Germany, 
France  or 
the  cost-
the  UK).  In  addition, 
competitiveness  of  exports  might  erode  if  the 
observed  tightness  in  the  labour  market  persists 
and  the  resulting  real  wage  growth  continually 
outpaces productivity growth. The Czech Republic 
has  the  lowest  rate  of  unemployment  and  that  of 
job seekers per vacancy in the EU and the OECD. 
In  this  context,  businesses  have  started  to  invest 
more  in  machinery  to  offset  the  current  labour 
shortages.  However,  the  lag  in  the  investment-to-
productivity  could  possibly  restrain  economic 
growth in the near future.  

Potential growth 

Potential growth moved beyond the peak of the 
cycle.  After  reaching  almost  3 %  in  2017,  in  the 
coming  years it  will  gradually abate  towards 2 %. 
After  widening  in  2017  and  2018,  the  output  gap 
will likely stabilise at around 1 % of GDP in 2019 
and  2020,  which 
temper 
inflationary pressures (Graph 1.3).  

should  partially 

Graph 1.3: 

Potential GDP and drivers 

Source: European Commission 

limited  gains 

The  decline  in  the  working-age  population  and 
technological  change  brings  new  challenges. 
in 
Demographic  changes  and 
productivity  hamper  potential  GDP  growth. 
labour  potential  of 
Besides  tapping  into  the 
underrepresented  groups,  measures 
to  sustain 
include 
growth 
integrating  of  workers  from  EU  and  non-EU 
countries  and  extending  working  careers  (i.e. 

labour  market 

through 

the 

1. Economic situation and outlook 

through  healthier  and  more  productive  lives). 
Furthermore,  mismatches  in  qualitative  skills  can 
emerge in relation to the transition to Industry 4.0, 
requiring  new  education  and  training  measures. 
Administrative  burden  and  low  trust  in  the  public 
administration  may  hamper  further  foreign  and 
domestic investment and contribute to the shadow 
economy,  estimated  at  around  15 %  of  GDP  in 
2015 (European Commission, 2017). 

Household consumption  

Household  consumption  is  the  main  driver  of 
economic  growth.  High  employment,  higher 
wages,  increasing real disposable income and low 
credit  costs  have  boosted  private  consumption 
growth  in  recent  years.  The  3 %  to  4 %  annual 
growth  seen  since  2015  will  likely  continue  until 
2019. According to the Commission Autumn 2018 
Forecast, the moderation in wage growth predicted 
for  2020  is  expected  to  go  hand  in  hand  with  a 
deceleration  of  private  consumption  growth 
(2.5 %).  Household  savings  could  recover  from 
their current low levels to a rate of almost 11 % of 
gross disposable income up to 2020. There is also 
a  change  in  consumption  patterns  associated  with 
record  levels  of  consumer  confidence.  The  more 
buoyant  consumption  categories  in  2017  were 
semi-durable  and  durable  goods,  both  with  an 
annual growth of around 10 %. 

Investment  

Investment  has  gained  momentum  in  the  last 
two  years  and  its  outlook  remains  positive. 
Investment  in  physical  infrastructure  increased  by 
3.3 % in 2017 and has accelerated to 7.8 % in 2018 
(Commission Autumn 2018 forecast). Automation 
and  robotisation  needs  in  manufacturing,  public 
investment supported by EU funds and the revival 
of  investment  in  construction  in  the  first  half  of 
2018 contributed to this  surge. Investment  growth 
may  moderate  in  2019  and  2020,  but  will  remain 
above 3 % on the back of increased inflows of EU 
funds. 

in  automation 

Investment 
represents  an 
opportunity  for  Czech  industry,  in  particular 
for carmakers. Investment activity as a proportion 
of GDP has traditionally been around 5 pps above 
the  EU  average  (24.7 % vs  20.0 %  in  2017)  due 
the  weight  of  the  manufacturing  sector  in  the 
economy, which requires high levels of investment 

7 

-1.00.01.02.03.04.05.0050607080910111213141516171819202122Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growth 
 
1. Economic situation and outlook 

pressures.  As  a  result,  the  base  interest  rate  (two-
week  repo  rate)  increased  from  0.05 in  July  2017 
to 1.75 % in November 2018, further widening the 
rate  differential  with  the  euro  area  (see  Section 
3.2).  Further  interest  hikes  may  follow  in  the 
coming quarters.  

Labour market 

The Czech labour market continues to be a top 
performer.  The  employment  rate  has  risen 
steadily in the last 7 years, reaching 80.0 % in Q3-
2018.  Overall  employment  growth  is  expected  to 
slow down to 0.3 % in 2019, given reduced scope 
for  further  increases  in  the  participation  rate  (see 
Section  3.3).  The  unemployment  rate  fell  to  a 
record  low  of  2.9 %  in  2017  and  2.1 %  in  Q4-
2018, the lowest in the EU for the second year in a 
row  and  will  likely  stabilise  at  around  2.5 % over 
the  next  2  years  (Commission  Autumn  2018 
recent 
have 
forecast).  There 
improvements  in  terms  of  youth  (5.3 %  in  Q4-
2018) and long-term unemployment (0.7 % in Q3-
2018).  With  the  economy  near  full  employment, 
labour  shortages  are  becoming  more  acute  and 
have spurred wage increases after several years of 
more 
of 
manufacturers  and  40 %  of  builders  cited  labour 
shortages  as  a  factor  limiting  production  in  Q4-
2018 (4) and the number of job vacancies has been 
twice  that  of  unemployed  people  since  mid-2018 
(Graph 1.5). 

growth.  About 

subdued 

45 % 

been 

also 

The  rate  of  employment  is  weaker  for  low-
skilled  workers,  women  with  young  children, 
people  with  disabilities  and  older-age  groups. 
As they bear  most of the care responsibilities, the 
employment  rate  of  women  in  2017  (70.5 %)  is 
below that of men (86.3 %). The employment rate 
of  low-skilled  workers  in  the  labour  market  has 
stagnated  since  EU  accession.  Their  employment 
rate  of  around  30 %  is  around  50  pps  below  the 
Czech average. At 62.2 %, the employment rate of 
those between 55-64 years old was 24.6 pps below 
that  of  workers  aged  25-54.  The  employment  gap 
for  people  with  disabilities. 
is  also  high 
Participation  in  training  and  lifelong  learning  is 
low, in particular for underrepresented groups.  

(4)  European Business and Consumer Survey 

equipment 

in 
(Graph  1.4).  Manufacturing 
amounted  to  26.8 %  of  gross  value  added  (GVA) 
in  2017,  12.5  pps  more  than  the  aggregate  EU 
average.  The  automotive  sector  is  the  largest 
branch of Czech industry, both in terms of output 
and employment. However, the  current context of 
severe  labour shortages and revised CO2 emission 
standards  for  cars,  poses  significant  challenges  in 
the  sector.  Therefore,  despite  the  high  degree  of 
automation, carmakers and other manufacturers are 
expected to increase investment in equipment (see 
Section 3.4). 

Graph 1.4: 

Investment by sector as a share of GDP 

Source: AMECO 

Inflation and monetary policy 

Despite steady wage growth, the Czech National 
Bank  (CNB)  contained  inflation  below  the 
limit  of  the  tolerance  band  (3 %). 
upper 
Consumer  price  inflation,  measured  by  the  the 
Harmonised  Index  of  Consumer  Prices,  slowed 
down  slightly  in  2018  to  2.0 %,  from  2.4 %  in 
2017.  The  rapid  growth  in  energy  prices  in  the 
second half of 2018  was offset by  the  moderation 
in  food  prices.  Further  tightening  in  monetary 
policy is likely to ensure that inflation stabilises at 
CNB's  2 %  target  in  the  second  half  of  2019  and 
remain close to that in 2020. Consumer prices are 
forecast  to  grow  by  2.1 %  in  2019  and  1.9 %  in 
2020 (Commission Winter 2019 Forecast).  

The CNB increased the base rate seven times in 
16 months.  This  was in response to the increased 
activity  in  the  credit  market  and  inflationary 

8 

0510152025302008200920102011201220132014201520162017% of GDPCZ constructionCZ equipmentCZ otherEU-28 constructionEU-28 equipmentEU-28 other 
 
                                                           
1. Economic situation and outlook 

Graph 1.5: 

Unemployment and job vacancies 

Regional disparities 

The  observed  convergence  and  overall  social 
situation  mask  increasing  regional  disparities. 
GDP  per  person  varies  from  63 %  of  the  EU 
average  in  the  Northwest  region  to  182 %  in 
Prague.  The  Northwest  region  actually  saw  its 
GDP per head diminishing in absolute terms since 
2010.  Furthermore,  while  regions  like  Moravia-
Silesia  have  been  losing  people,  Prague  and 
Central  Bohemia  regions  have  witnessed  positive 
demographic developments. 

Graph 1.6: 

Regional disparities in the Czech Republic 

Source: Eurostat 

Social developments 

income  of 

the  poorest  20 % 

Overall,  income  inequality  remains  low  in  the 
Czech  Republic.  The  income  of  the  richest  20 % 
of the population was around 3.4 times higher than 
in  2017, 
the 
significantly  lower  than  the  5.1  ratio  in  the  EU. 
This  ratio  has  remained  stable  since  2005  as  real 
disposable  household 
income  grew  relatively 
evenly  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 
inequality  and 
gap  between  market 
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.  

income 

is 

Inequality  of  opportunity 
significantly 
influencing  educational  outcomes  and  the  risk 
of poverty. The risk of poverty for the children of 
low-skilled parents is among the highest in the EU, 
but  among  the  lowest  for  the  children  of  high- 
skilled  parents.  Socio-economic  backgrounds  also 
strongly  influence  educational  outcomes.  Unequal 
opportunities  start  early  in  life  as  high  costs  limit 
access  to  childcare  for  low-wage  earners  (see 
Section 3.3).  

Source: Eurostat, European Commission 

The distribution of opportunities and challenges 
is concentrated in certain areas. In general, rural 
regions  are  poorer,  have  a  lower  productivity, 
higher  gender  inequalities,  increasing  levels  of 
homelessness,  high  indebtedness,  a  higher  early-
school  leaving  rate,  low  capacity  to  innovate  and 
acute  demographic  challenges  (Graph  1.6).  These 
regions also witness increasing numbers of socially 
excluded localities and seizure orders, while facing 
a  lack  of  affordable  social  housing.  The  gap 
between  Prague  and  Brno  and  the  less  developed 
regions  has 
increased,  most  visibly 
compared  with  the  Northwest  region.  Migration 
towards richer regions is increasing the process of 
suburbanisation 
in  metropolitan  areas,  putting 
pressure  on  the  housing  stock  and  infrastructure 
networks (see Section 3.4.3). 

further 

9 

0123456789050100150200250300350400450Unemployed (persons) (lhs)Total number of job vacancies (lhs)Unemployment rateThousands% labourforce20406080100120140160180200GDP in PPSper headGDP per headchangeInvestmentratePopulation growthProductivityIndex, EU 28=100EU28Non-capital regionsCapital regionMS average 
 
 
1. Economic situation and outlook 

Competitiveness 

External position 

Robust  job  creation  and  the  tightening  labour 
market  have  pushed  up  wages.  Nominal  wages 
of  employees  increased  by  6.4 %  in  2017  with  a 
further  8 %  growth  expected  in  2018  and  2019 
(Commission  Autumn  2018  forecast).  Real  wage 
growth  amounted  to  4.1 %  in  2017,  while  net 
earnings increased by 3 %. The wage bill grew by 
8.3 % in 2017, driven by both wage increases and 
employment  growth.  Over  the  past  3  years,  the 
growth  of  the  wage  bill  was  above  the  GDP 
increase  and  exceeded  the  benchmarks  calculated 
based on economic fundamentals. As growth of the 
wage  bill  also  exceeded  the  speed  of  productivity 
growth, nominal unit labour costs kept growing in 
2017  and  2018  (Graph  1.7).  Nonetheless,  this 
recent  wage  growth  went  hand  in  hand  with  the 
gains  in  export  market  shares,  suggesting  that  it 
has had limited effect on competitiveness so far.  

Graph 1.7:  Nominal unit labour cost (breakdown) 

The  Czech  Republic’s  trade  balance  has  been 
systematically  positive  since  2004.  It  recorded  a 
surplus  of  7.5 %  of  GDP  in  both  2016  and  2017. 
The contribution of goods and services to the trade 
balance  surplus  remained  roughly  unchanged 
compared  to  2016,  although  the  goods  balance 
shows  more  historical  volatility  than  the  services 
balance.  According  to  the  Commission  Autumn 
2018  forecast,  the  trade  balance  may  decline  to 
6.7 % in 2018 due to a smaller surplus in the trade 
of  goods.  Weaker  external  demand,  in  particular 
from Germany, and strong domestic demand have 
influenced 
strong 
appreciation  of  the  real  effective  exchange  rate  in 
the  first  half  of  2018  was  also  detrimental  to  the 
trade  balance,  which  will  likely  remain  close  to 
7 % of GDP in 2019 and 2020. 

these  developments.  The 

The  current  account  will  remain  balanced  due 
to the large primary income deficit. The primary 
income  balance  is  traditionally  negative,  due  to  a 
large  extent,  to  profit  outflows  by  foreign-owned 
firms operating in the Czech Republic (Graph 1.8).  

Graph 1.8:  Current and capital accounts 

Source: Commission Autumn 2018 forecast 

The  increase  in  the  minimum  wage  responded 
to  the  market  trends.  The  planned  minimum 
wage for 2019 is CZK 13 350, a 67 % cumulative 
increase in the last 5 years. Nonetheless, currently 
only  4 %  of  employees  receive  the  minimum 
wage. In order to improve the living conditions of 
low-skilled  workers,  there  is  currently  a  domestic 
debate regarding further increases of the minimum 
wage. 

Source: European Commission 
Note: 2018 is estimated based on quarterly data 

Financial sector 

Banks  in  the  Czech  Republic  remain  highly 
profitable  and  display  healthy  stability  ratios. 
Since  EU  accession,  their  profitability  rate  has 
persistently been among the highest in the EU. The 
interest  rate  increases  attract  abundant  euro  area 

10 

-8-6-4-20246810030405060708091011121314151617181920Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU28Forecast-15-10-5051000010203040506070809101112131415161718*% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA) 
 
 
liquidity. The  growth of  financial  sector liabilities 
escalated  at  the  turn  of  2016  to  2017,  as  non-
residents  purchased  deposits  denominated 
in 
korunas  before  the  end  of  the  currency  exchange 
rate  commitment  in  April  2017.  These  dynamics 
were caused by investors' expectations and abated 
once  the  Czech  koruna  floated  freely  again  in 
foreign exchange markets. 

House  prices  are  estimated  to  be  slightly 
overvalued.  Both  housing  prices  and  the  volume 
of  mortgages  have  grown  fast  since  2016,  on  the 
back of economic expansion, strong wage inflation 
and 
the 
supply  constraints.  Depending  on 
methodology  used,  house  prices  are  estimated  to 
be overvalued in the range of 0 to 10 %, still below 
the level of significant risk. In addition, household 
debt is still moderate compared to the EU average, 
despite increasing in the recent period. To control 
credit growth, the CNB has implemented a number 
of measures directed at lenders and borrowers (see 
Section 3.2).  

Private indebtedness 

ratios  of 

Private indebtedness in terms of GDP (67.4 %) 
is  low  compared  to  the  EU  average  (140 %). 
Nominal  GDP  has  been  growing  nearly  as  fast  as 
mortgage stocks. Household sector debt decreased 
by  1.6  pps  to  29.7 %  of  GDP  at  the  end  of  2017, 
while 
the  debt  of  non-financial  corporations 
remained  broadly  stable  at  around  38 %  of  GDP. 
interest  payments  on  gross 
Both 
disposable  income  for  households  and  on  value 
added  for  non-financial  corporations  were  lower 
than  the  euro  area  levels  at  the  end  of  2017. 
Increasing 
interest  rates  do  not  yet  pose  a 
significant  risk  on  repayments,  although  they 
might affect the non-performing loans (NPL) ratio. 
Overall,  9.7 %  of  people  over  15  years  were 
affected  by  enforcement  orders  in  2017  (see 
Section  3.3).  The  most  exposed  group  appears  to 
be lower income debtors with consumer loans. It is 
high in regions with the largest proportion of low-
skilled people (over 20 % in the Ústecký region).  

1. Economic situation and outlook 

Graph 1.9: 

Private sector indebtedness 

Source: Eurostat 

Public finances 

The  general  government  balance  will  decline 
but  will  remain  positive  until  at  least  2020.  On 
the  back  of  the  growing  economy,  the  general 
balance has been in surplus since 2016, supported 
by  growth  in  tax  receipts  and  by  lower-than-
expected levels of public investment.  Measures  to 
prevent tax evasion, such as electronic evidence of 
sales and VAT control statements, have proven to 
be  efficient  and  contributed 
the  revenue 
increase. Additional VAT receipts are expected to 
grow  in  line  with  GDP  growth  over  the  forecast 
horizon.  Significant wage increases since 2017 in 
both  the  public  and  private  sector  boosted  direct 
taxation  receipts.  On  the  expenditure  side,  most 
increases  relate  to  public  wages  and  pensions, 
which  are  expected  to  increase  significantly  in 
both 2018 and 2019. As the current EU funds cycle 
is advancing, public investment will likely pick up.  

to 

In line with the headline balance, the structural 
balance is also expected to decline towards zero. 
It  will  likely  remain  positive  until  at  least  2020, 
amid  a  constant  output  gap.  According  to  the 
Commission  Autumn  2018  forecast,  the  debt-to-
GDP  ratio  will  continue  to  decrease,  reaching 
around 31.2 % of GDP in 2020. 

11 

0204060801001201401600405060708091011121314151617% of GDPHouseholdNon financial corporationsPrivate sectorPrivate sector EU28MIP Threshold 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators - Czech Republic 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation 
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise) 

12 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)6.00.22.52.54.42.92.92.7Potential growth (y-o-y)4.51.71.92.72.92.92.82.7Private consumption (y-o-y)3.70.52.03.64.3...Public consumption (y-o-y)0.1-0.21.82.71.3...Gross fixed capital formation (y-o-y)7.4-1.83.7-3.13.7...Exports of goods and services (y-o-y)18.14.24.94.36.7...Imports of goods and services (y-o-y) 15.72.95.62.85.9...Contribution to GDP growth:Domestic demand (y-o-y)3.9-0.32.31.43.2...Inventories (y-o-y)0.7-0.50.4-0.40.1...Net exports (y-o-y)1.41.0-0.21.41.1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.5-0.10.61.01.00.80.50.4Capital accumulation (y-o-y)1.00.70.50.50.60.80.80.8Total factor productivity (y-o-y)3.01.10.81.11.31.41.51.5Output gap3.4-0.3-1.9-0.31.01.11.21.0Unemployment rate7.26.46.14.02.92.42.52.6GDP deflator (y-o-y)2.00.91.71.31.41.62.32.0Harmonised index of consumer prices (HICP, y-o-y)2.32.70.70.62.42.02.11.9Nominal compensation per employee (y-o-y)6.02.31.84.06.48.07.85.6Labour productivity (real, person employed, y-o-y)4.60.31.70.82.8...Unit labour costs (ULC, whole economy, y-o-y)1.32.00.03.13.66.55.03.0Real unit labour costs (y-o-y)-0.71.0-1.61.82.14.82.60.9Real effective exchange rate (ULC, y-o-y)3.81.8-3.73.65.88.22.80.8Real effective exchange rate (HICP, y-o-y)3.12.1-2.82.63.84.4-0.2-0.3Savings rate of households (net saving as percentage of net disposable income)6.46.96.36.54.4...Private credit flow, consolidated (% of GDP)7.03.52.14.54.1...Private sector debt, consolidated (% of GDP)51.367.371.168.967.4...of which household debt, consolidated (% of GDP)18.228.830.831.329.7...of which non-financial corporate debt, consolidated (% of GDP)33.138.540.337.637.8...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)...3.42.5...Corporations, net lending (+) or net borrowing (-) (% of GDP)-3.1-1.20.1-1.8-1.1-2.1-2.0-1.4Corporations, gross operating surplus (% of GDP)29.128.930.130.529.928.128.028.2Households, net lending (+) or net borrowing (-) (% of GDP)1.62.32.11.60.30.71.21.2Deflated house price index (y-o-y)4.7-1.01.66.79.1...Residential investment (% of GDP)3.63.83.43.73.9...Current account balance (% of GDP), balance of payments-3.2-2.30.01.61.10.30.20.6Trade balance (% of GDP), balance of payments1.83.56.07.47.2...Terms of trade of goods and services (y-o-y)-0.5-0.71.01.0-1.0-0.50.30.5Capital account balance (% of GDP)0.30.91.71.10.9...Net international investment position (% of GDP)-27.9-43.8-36.9-26.9-26.5...NIIP excluding non-defaultable instruments (% of GDP) (1)17.98.718.228.228.7...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)30.742.252.157.170.6...Export performance vs. advanced countries (% change over 5 years)77.230.7-1.40.03.3...Export market share, goods and services (y-o-y)..0.84.51.2...Net FDI flows (% of GDP)-4.8-1.7-0.2-3.9-2.7...General government balance (% of GDP)-2.0-3.7-1.30.71.51.40.80.7Structural budget balance (% of GDP)..-0.40.91.21.00.30.2General government gross debt (% of GDP)27.936.742.336.834.733.232.131.2Tax-to-GDP ratio (%) (3)34.433.234.334.835.436.536.536.4Tax rate for a single person earning the average wage (%)23.322.923.123.6....Tax rate for a single person earning 50% of the average wage (%)18.714.315.116.1....(1) NIIP excluding direct investment and portfolio equity shares(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

68 % 

Since  the  start  of  the  European  Semester  in 
country-specific 
2011, 
recommendations  addressed 
the  Czech 
to 
Republic have recorded at least ‘some progress 
(5).  32 %  of  these  CSRs  recorded  ‘limited’  or  ‘no 
progress’  (see  Graph  2.1).  In  several  areas  the 
Czech  Republic  made  ‘substantial  progress’  or 
reached  ‘full  implementation’.  For  example,  there 
has been a full implementation in securing a timely 
and durable correction of the excessive deficit and 
the  medium-term 
ensuring  compliance  with 
substantial 
budgetary  objective.  Furthermore, 
progress  was  achieved  in  adopting  legislation  to 
strengthen the fiscal framework. 

Graph 2.1:  Overall multiannual implementation of 2011-

2018 CSRs to date 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
(2) 2011 annual assessment: Different CSR assessment 
categories 
(3) The multiannual CSR assessment looks at the 
implementation until 2019 Country Report since the CSRs 
were first adopted. 
Source: European Commission 

sustainability  of  public 

The Czech Republic has made limited progress 
in  improving  the  long-term  sustainability  of 
health  and  pension  expenditure.  Most  measures 
adopted in the recent years have increased pension 
adequacy but lacked safeguards to ensure the long-
term 
finance.  The 
retirement age was capped at 65, a figure that will 
be  reviewed  in  2019  when  the  government  is 
expected  to  issue  a  report  on  the  pension  system. 
The  projected 
in  age-related  public 
expenditure  on  healthcare  also  puts  long-term 
fiscal sustainability at risk. 

increase 

(5)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 3. 

Some  progress  was  made  in  increasing  labour 
market participation of some underrepresented 
groups.  Improvements  supported  through  EU 
funds increased the number of childcare  facilities, 
supporting  women’s  labour  market  participation. 
However,  there  are  delays  in  implementing  other 
policy  measures.  The  announced  changes  in  the 
provision  of  individualised  services  by  public 
employment  services,  which  could  further  help 
other  underrepresented  groups,  have  not  yet 
brought  tangible  results.  Due  to  the  ineffective 
targeting  and  a  lack  of  tailored  measures,  the 
progress  in  improving  effectiveness  of  active 
labour  market  policies  was  limited,  preventing 
these  groups from benefitting from the  favourable 
conditions of the labour market. 

The Czech Republic has made some progress (6) 
in  addressing 
country-specific 
the  2018 
recommendations.    However,  no  progress  has 
been  made 
long-term 
improving 
sustainability  of  public  finances.  The  government 
adopted  new  measures,  which,  on  the  one  hand, 
may improve the adequacy of the pension system, 
but, on the other hand, worsen sustainability.  

the 

in 

There  has  been  some  progress  in  addressing 
weaknesses  in  public  procurement  practices 
and  reducing  the  administrative  burden  on 
investment.  The  public  procurement 
training 
system was improved and there has been increased 
cooperation  of  contracting  authorities  with 
the 
professional 
proportion of tender procedures attracting only one 
bid  remained  very  high,  with  most  opting  for  the 
reducing 
price-only 
criteria.  As 
the 
administrative  burden,  an  amendment 
current legislation has the potential to shorten and 
improve  the  effectiveness  of  permits  proceedings 
relating to strategic infrastructure.  

authorities.  Nonetheless, 

regards 

to 

hampering 

limited  progress 

in  removing 
There  was 
bottlenecks 
and 
innovation. The announced ‘Investment package’, 
if  well  designed,  could  attract  higher  value 
investments in the country and thus strengthen the 
the  Czech 
innovation  potential.  Nonetheless, 

research 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address the policy advice in each respective subpart of the 
CSRs is presented in the Overview Table in the Annex A. 
This overall assessment does not include an assessment of 
compliance with the Stability and Growth Pact. 

13 

4%28%46%15%7%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Annual assessment of the 2018 Country Specific Recommendations for the Czech Republic 

Source: European Commission 

Republic  remains  only  a  ‘moderate’  innovator  as 
the  proportion  of  innovative  Czech  enterprises  is 
below the EU average 

There  was  some  progress  in  improving  the 
quality  and  inclusiveness  of  the  mainstream 
education and in fostering employment of some 
underrepresented  groups.  In  education,  several 
measures were adopted or announced, including an 
increase  in  funding  in  2019  and  a  reform  of  the 

funding  system  in  regional  schools.  Nonetheless, 
the progress in increasing the attractiveness of the 
teaching  profession  has  been  more  limited.  The 
labour market participation of women, low skilled 
and  people  with  disabilities  has  somewhat 
improved  but  the  effectiveness  of  active  labour 
market policies needs to be further addressed. 

14 

The Czech Republic Overall assessment of progress with the 2018 CSRs: Some progress CSR 1: Improve the long-term fiscal sustainability, in particular of the pension system. Address weaknesses in public procurement practices, in particular by enabling more quality-based competition and by implementing anti-corruption measures. Limited progress  No progress in addressing long-term sustainability of public finances.  Some progress in addressing the weaknesses in public procurement practices. CSR 2: Reduce the administrative burden on investment, including by speeding up permit procedures for infrastructure work. Remove the bottlenecks hampering research, development and innovation, in particular by increasing the innovation capacity of domestic firms. Strengthen the capacity of the education system to deliver quality inclusive education, including by promoting the teaching profession. Foster the employment of women, the low-skilled and disabled people, including by improving the effectiveness of active labour market policies. Some progress  Some progress in reducing administrative burden on investment.  Limited progress on removing the bottlenecks hampering research, development and innovation.  Some progress in strengthening the capacity of the education system.  Some progress in fostering employment of underrepresented groups.   
 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to 
fostering growth and competitiveness in the Czech Republic 

The  Czech  Republic  is  one  of  the  largest  beneficiaries  of  the  European  Structural  and 
Investment  Funds  (ESI  Funds).  The  total  allocation  in  the  current  multiannual  financial 
framework amounts to EUR 24 billion, potentially amounting to around 1.8 % of the annual GDP. 
By the end of 2018, around EUR 14.6 billion (61 % of the total) was allocated to specific projects. 
In addition, EUR 1.2 billion was allocated to projects on strategic transport networks through the 
Connecting Europe Facility. Furthermore, over 780 projects implemented by research institutions, 
innovative companies and researchers benefited from EUR 221 million of additional EU funding 
via  Horizon  2020,  covering  a  very  broad  thematic  spectrum  from  transport,  energy  and  ICT  to 
environment,  health  and  agriculture.  EU  action  also  strengthened  national,  regional  and  local 
authorities and the civil society. Over EUR 560 million was allocated to strengthen the capacity of 
the  public  administration  at  different  levels.  The  European  Commission’s  Coal  Regions  in 
Transition  Initiative  implemented  at  national  level  under  the  Strategic  Framework  for  Economic 
Restructuring  (RE:START)  receives  significant  support  from  ESI  Funds  to  enhance  socio-
economic and technological transformation in three regions with a sizeable coal mining industry. 

EU  funding  is  helping  to  address  policy  challenges  identified  in  the  2018  CSRs.  ESI  Funds 
contribute to the removal of bottlenecks in research and innovation and support closer cooperation 
between  business  and  research  institutions.  Overall,  by  the  end  of  2018,  EU  funding  helped  to 
improve infrastructure for more than 4 800 researchers and nearly 4 000 companies. Over 700 km 
of roads and 120 km of rail were built or reconstructed. Furthermore, water supply for over 360 
000  people  was  improved,  and  over  200  000  people  are  now  protected  from  flood  risks.  The 
European Social Fund (ESF) is instrumental to the reform of education and training in the Czech 
Republic,  including  by  improving  inclusive  education.  There  are  almost  10 000  projects  being 
implemented  by  education  institutions  which  helped,  among  others,  to  include  1 000  Roma 
children in mainstream education and to create more than 12 500 affordable childcare places. The 
funds also helps vulnerable groups to find work, aiding some 8 000 people with disabilities to get 
into employment. 

In addition, the Commission can provide tailor-made technical support upon request from a 
Member  State  via  the  Structural  Reform  Support  Programme  to  help  implement  growth-
sustaining  reforms  to  address  challenges  identified  in  the  European  Semester  process  or 
other national reforms. The Czech Republic is receiving support to establish a national e-health 
centre in view of improving the quality and cost-effectiveness of the health care. The Commission 
is  also  assisting  the  authorities  to  increase  energy  efficiency  and  to  develop  the  national  capital 
market. In addition, in 2018, the work has started on developing a national strategy to strengthen 
SMEs and increase capacity on tax collection and digitalisation in transport infrastructure. 

EU  funds  mobilise  private  investment.  ESI  funds  mobilise  additional  private  capital  by 
allocating nearly EUR 567 million in the form of loans, guarantees and equity. A total of EUR 744 
million allocated under the European Fund for Strategic Investments (EFSI) is set to trigger EUR 
4.1  billion  in  additional  private  and  public  investments.  Under  the  EFSI  Infrastructure  and 
Innovation Window, 13 approved projects worth EUR 189 million are expected to trigger around 
EUR 711 million in total investment. Under the EFSI Small and Medium-Sized Enterprises (SME) 
Window, 17 agreements with intermediary banks were approved for a total of EUR 555 million in 
financing.  This  should  mobilise  around  EUR  3.4  billion  in  investments  with  more  than  20 036 
SMEs and mid-cap companies expected to benefit from improved access to finance.  

15 

 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation 

Tax  revenues  have  continued  to  increase  in 
2017,  contributing  to  the  general  government 
surplus.  They  increased  from  34.8 %  of  GDP  in 
2016 to 35.4 % of GDP in 2017. This brought the 
tax  revenues  to  the  highest  level  since  2004, 
although still below the EU (40.2 %) and euro area 
(EA) (41.4 %) averages. This increase was mainly 
driven  by  a  significant  increase  in  receipts  from 
VAT  and  import  taxes  and  duties,  which,  as  a 
share  of  GDP,  have  been  constantly  higher  than 
the  EU  and  EA  averages.  The  Commission 
Autumn  2018  forecast  projects  a  further  increase 
to  around  36.5 %  in  2018.  These  measures, 
together  with  the  robust  economic  growth,  have 
doubled the general government surplus in 2017 to 
1.6 %  and  brought  the  government  debt  below 
35 % of GDP.  

Receipts  from  labour  and  consumption  taxes 
have  been  increasing.  Net  social  contribution 
revenues  have  increased  in  recent  years  on  the 
back of a buoyant labour market and economy. By 
contrast, revenues from direct taxes, which mostly 
include  taxes  on  income  and  wealth,  are  still 
significantly  below  the  levels  seen  in  the  EU  and 
EA.  The  share  of  direct  taxes  collected  from 
households  (mainly  from  labour  income),  for 
example, accounts for 4.0 % of GDP compared to 
9.2 %  in  the  EA.  On  the  other  hand,  the  implicit 
tax rate on employed labour is higher than the EU 
average  (7)  due  to  a  higher  reliance  on  social 
contributions  (Graph  3.1.1).  As  a  share  of  GDP, 
receipts  from  the  corporate  tax  (3.5 %)  have  been 
slightly  above  the  EA  average  (2.7 %).  While  the 
recurrent  property  tax  is  one  of  the  least  harmful 
taxes  to  economic  growth  (OECD,  2010),  the 
receipts  collected  in  the  Czech  Republic  remain 
very  low.  In  addition,  the  tax  deductibility  of 
mortgage  interest  decreases  the  cost  of  home 
ownership,  contributing  also  to  the  housing  price 
dynamics  (8).  Environmental  tax  intake  remains 
relatively low, representing only 5.9 % of all taxes 
and social contributions collected in 2017. 

VAT  compliance,  a  government  priority,  has 
further  increased.  Tax  evasion,  as  measured  by 
the  VAT  compliance  gap  (9) has  declined  from 
20 %  in  2012  to  14 %  in  2016  (CASE,  2018). 
After  first  phases  of  the  electronic  evidence  of 
sales  and  the  control  statements  were  introduced, 
the VAT gap fell 3 percentage points (pps) in 2016 
compared  to  2015.  Nonetheless,  the  estimated 
figure  remains  above  the  unweighted  EU  average 
in  some  other 
of  12.3 %  and  higher 
neighbouring countries.  

than 

Graph 3.1.1:  Tax revenues by main taxes compared to EU 

average in 2017 (in % of total taxation) 

Source: European Commission; EUROSTAT 

The taxation of labour for both low and average 
wage  earners  remains  very  high.  Although  the 
tax  wedge  is  around  3  pps  above  the  EU  average 
for  single  persons  with  no  children  and  receiving 
the  average  wage,  the  difference  is  particularly 
pronounced  at  lower  wage  levels.  At  67 %  of  the 
average wage, the tax wedge is almost 4 pps higher 
than  the  EU  average.  At  50 %  and  33 %  of  the 
average wage, the tax wedge gap vis-à-vis the EU 
average  jumps  to  around  6 pps.  In  general,  single 
persons  with  children,  earning  less  than  the 
average  wage,  have  a  significantly  higher  tax 
wedge  compared  to  the  EU  average  (10).  By 
contrast, for couples with no children and only one 
earner making 167 % of the average wage, the tax 

(7)  In  2016,  the  implicit  tax  rate  on  labour  stood  at  39.8 %, 

while the corresponding EU average was 36 %.  

(8)  Currently only nine out of the 28 Member States maintain a 

mortgage tax relief with a sizeable effect. 

(9)  The  VAT  gap  is  the  difference  between  the  amount  of 
VAT revenue actually collected and the theoretical amount 
that is expected to be collected. 

(10)  A  single  person  with  two  children  had  a  tax  wedge  of 
around 13.64 % in 2017. The EU average was 5.56 %. 

16 

 
 
                                                           
 
                                                           
3.1. Public finances and taxation 

wedge is 3 pps below the EU average. The wedge 
is mainly influenced by the high rate of employer’s 
social  security  contributions.  High  tax  wedges 
combined  with  high  childcare  costs  may  have  a 
particular  negative  impact  on  the  labour  market 
participation  of  low-wage  and  secondary  earners. 
In  addition,  self-employed  people  continue  to 
benefit  from  a  lower  assessment  base  for  social 
contributions. This can encourage activity but may 
also lead to some bogus self-employment.  

evaluation of the fiscal framework. The Committee 
on  Budgetary  Forecast,  composed  of  appointees 
from public and private organisations, also started 
assessing  the  macroeconomic  and  fiscal  forecasts 
prepared  by  the  government.  The  Parliament 
ratified  the  Treaty  on  Stability,  Coordination  and 
Governance in the Economic and Monetary Union 
in December 2018. The key element of the treaty, 
the  Fiscal  Compact,  is  not  binding  for  non-euro 
area countries and the government does not intend 
to adhere to it voluntarily. 

control 

statement 

Tax  compliance  costs  for  businesses  remain 
above  the  EU  median.  According  to  the  World 
Bank  (2018a),  the  time  needed  to  pay  and  file 
taxes  in  the  Czech  Republic  totalled  230  hours  in 
2017,  18  hours  less  compared  to  2016  but  higher 
than  in  other  neighbouring  countries.  The  new 
VAT 
requirements  have 
increased the time to comply  by around 14 hours. 
A  proposed  VAT  reduction  for  certain  products 
and  services  might  also  add  complexity  to  the 
VAT  system,  while  having  a  questionable 
efficiency.  According to a recent study (European 
Commission,  2018a),  almost  50 %  of 
the 
respondents consider the complexity of tax laws in 
the  Czech  Republic  as  very  burdensome,  with 
another 29 % perceiving it as burdensome.  

the 

Fiscal coordination among the various levels of 
general government  remains low. A third of the 
general  government  expenditure  is  autonomous 
and  outside 
state  budget.  The  Fiscal 
Responsibility  Law  of  January  2017  introduced  a 
cap of 60 % of the 4-year average of revenues for 
local  governments’  debt.  The  Ministry  of  Finance 
will  assess  the  compliance  with  the  new  debt 
management rule in 2019. The Czech Republic has 
not  yet 
transposed  Council  Directive 
2011/85/EU on the requirements for the budgetary 
framework. The deadline for the transposition was 
31 December 2013. In particular, the Legal Act on 
Management  and  Control  Systems 
in  Public 
Administration has not been adopted yet.  

fully 

income 

In  early  2018,  the  government  outlined  a 
possible  reform  of 
tax.  That 
the 
particular proposal aimed to balance the reduction 
of  the  labour  income  tax  base  with  an  increase  in 
the  personal  income  tax  rate.  The  government  is 
currently  elaborating  the  parameters  of  the  final 
reform  proposal.  The  European  Commission 
carried out a simulation of the government’s initial 
proposal  (Box  3.1.1),  which  suggests  that  the 
(first-order)  potential  net  budgetary  cost  could 
amount  to  around  0.26 %  of  GDP,  mainly  due  to 
the  decrease  in  income  tax  revenues.  Additional 
tax  reforms  shifting  taxes  away  from  labour  to 
tax  bases  could  be 
more  growth-friendly 
considered, especially since the implicit tax rate on 
labour  is  relatively  high.  Targeted  changes  in 
favour of low-skilled and secondary earners might 
also prove particular beneficial.  

Fiscal framework 

independent 

institution  became 
fiscal 
The 
operational in early 2018. The  main tasks of  the 
Fiscal  Council  are  the  publication  of  an  annual 
the 
report  on 

sustainability  and 

long-term 

Debt sustainability analysis and fiscal risks  

There  are  no  fiscal  sustainability  risks  in  the 
short  run.  In  addition  to  a  favourable  initial 
is 
budgetary  position, 
expected to remain significantly below the 60 % of 
GDP threshold, reaching around 31 % in 2020. As 
a result, the medium-term fiscal sustainability risk 
indicator (S1) is at -2.9 pps of GDP. 

the  government  debt 

The  long-term  sustainability  of  public  finances 
may  worsen.  According  to  the  recent  Fiscal 
Sustainability  Report 
(European  Commission, 
2019)  ageing  costs  are  expected  to  increase  by 
4.7 pps  of  GDP  in  the  long  term.  The  Fiscal 
Council  (2018),  in  a  recent  report,  provides  even 
more  pessimistic  projections  due  to  a  different 
assumption  regarding  demographics  and  a  no-
policy change scenario. The report stated that if the 
current  tax  and  spending  policy  were  to  be 
maintained,  public 
expenditure  on  old-age 
pensions could almost double in the next 50 years. 

Pension expenditure is the main factor reducing 
long-term  sustainability.  The  measures  taken  in 

17 

 
3.1. Public finances and taxation 

hospital beds remained above the EU average (6.9 
per  1 000  inhabitants  vs  5.1  per  1 000  inhabitants 
in  the  EU).  In  addition,  hospital  discharges  and 
average  length  of  stay  are  well  above  the  EU 
average, while the percentage share of day cases in 
total  discharges  is  substantially  below  the  EU 
average  (3.2 %  versus  30.4 %).  Patients  in  long-
term  care  have  a  financial  incentive  to  receive 
prolonged  hospital  treatment  rather  than  being 
transferred  to  specific  long-term  care  facilities, 
where  they  will  have  to  make  co-payments. 
Furthermore,  long-term  care  focuses  mainly  on 
institutional  care,  which  may  not  always  be  cost-
efficient.  The  system  would  benefit  from  further 
investment  in  primary,  integrated,  and  psychiatric 
care, including in the required infrastructure. 

Ongoing  policy  reforms  have  the  potential  to 
increase  efficiency.  These  include  the  mandatory 
introduction of e-prescription as of January 2018, a 
pilot  project  on  centralised  procurement,  further 
development  of  Health  Technology  Assessment 
and a new system of inpatient care reimbursement 
and  hospital  benchmarking 
(new  Diagnosis 
Related  Groups).  The  latter,  however,  is  still  in  a 
pilot  phase  and  will  most  likely  not  be  used  for 
reimbursement  before  2020.  Developments  in  the 
area  of  e-health  provision  and  scaling  up 
centralised procurement are also needed. 

Ageing  poses  an  increasing  risk  of  future 
shortages  of  health  care  staff 
in  certain 
specialty fields and less urbanised regions. Even 
if the Czech Republic has around the same level of 
doctors  and  nurses  per  inhabitant  as  the  EU 
average,  there  are  regional  disparities  and  a  large 
proportion  of  the  health  workforce  will  reach 
retirement  age  in  the  coming  decade.  Efforts  are 
under way to increase the number of medicine and 
nursing graduates and increase wages in the sector. 

Ageing  and  multiple  chronic  diseases  will  put 
an  additional  burden  on  long-term  and  social 
care.  The  government  has  announced  a  new 
strategy on long-term care aiming to support home 
care  and  non-institutional  care.  It  has  also 
indicated its willingness to continue the reform of 
psychiatric 
on 
deinstitutionalisation  is  less  clear. There  are  plans 
to  reduce  the  current  high  percentage  of  children 
under 3 years old in institutional homes but there is 
room for further investment. 

reform 

care. 

The 

the 

in  demographic 
recent  years  and  changes 
projections 
long-term 
have  worsened 
budgetary  outlook  by  around  2 pps  of  GDP  by 
2070.  The  retirement  age  was  capped  at  65,  a 
figure  that  will  be  reviewed  in  2019  when  the 
government  is  expected  to  issue  a  report  on  the 
pension  system.  Nonetheless,  according  to  the 
national authorities, the report will have no impact 
on  the  long-term  sustainability  but  merely  open  a 
debate  about  an  increase  of  the  retirement  age. 
Currently,  expected  gains  in  life  expectancy  are 
not  automatically  taken  into  account,  since  the 
Parliament,  at  the  government’s  proposal,  has  to 
approve any system change.  

Recent measures increase pension adequacy but 
are not coupled with policies that improve long-
term  sustainability.  The  government  made 
pension  indexation  more  generous  by  taking  into 
account  one  half  (rather  than  the  previous  one 
third)  of  real  wage  growth.  It  will  also  top  up 
pensions  with  CZK  1  000  for  all  pensioners  over 
85 years of age and increase  the  flat rate share of 
the pension from 9 % to 10 % of the average wage. 
These  measures  will  likely  increase  costs  further 
and  worsen  the  sustainability  indicator  (S2)  by 
around  0.2  to  0.3  pps  of  GDP  in  the  long  term. 
While 
the  government  agreement  mentions 
pension  reform  among  its  priorities,  it  is  unclear 
what  reforms  are  envisaged  and  if  they  can 
improve the sustainability of the pension system.  

The  projected  increase  in  age-related  public 
expenditure  on  healthcare  also  reduces  long-
term  fiscal  sustainability.  Public  expenditure  on 
healthcare  is  projected  to  increase  by  1.1  pps  of 
GDP  by  2070,  above  the  EU  average  increase  of 
0.9 pps.  Taking  into  account  the  impact  of  non-
demographic drivers, it may increase by 1.9 pps of 
GDP  by  2070,  0.3  pps  above  the  EU  average 
(European Commission, 2018b). In the short term, 
the  health  insurance  funds  present  a  surplus,  but 
analyses  shows  that  they  are  sensitive  to  an 
economic downturn (Křeček, 2017). An additional 
state  contribution  to  the  health  insurance  funds  of 
about  CZK  3.5  billion  per  year  is  planned  until 
2020.  

The  health  system  is  still  centred  more  around 
hospitals  compared  to  other  EU  countries, 
suggesting  inefficiencies  in  providing  service. 
While  overall  expenditure  on  inpatient  care  was 
below the EU average in 2016, the total number of 

18 

 
3.1. Public finances and taxation 

Box 3.1.1: Effects of the potential income tax reform 

The  European  Commission  Joint  Research  Centre  conducted  simulations  of  the  effects  of  the  proposed 
income tax reform presented in February 2018. These were based on the EUROMOD model using 2016 EU-
SILC  data  (1).  The  proposal  aimed  to  reduce  the  effective  tax  rates  and  abolish  the  super  gross  tax  base 
calculation. In a super gross tax base system, the tax base for employees comprises gross wages and salaries, 
including  social  and  healthcare  contributions  of  employers,  amounting  to  34 %  of  the  income.  The 
microsimulation assumed five parts of this potential reform: (i) abolishment of the 7 % solidarity surcharge; 
(ii)  increase  of  the  15 %  tax  rate  to  19 %;  (iii)  introduction  of  a  second  bracket  tax  at  23 %  for  annual 
incomes above CZK 1.5 million; (iv) removal of the employer social and health contributions from the tax 
base; and (v) reduction of the tax base by ¾ of social and healthcare contributions for self-employed. 

The ceteris paribus net budgetary effect of the reform could amount to CZK 14.2 billion, or 0.26 % of GDP. 
The net effect comprises a CZK 13.7 billion decrease in income tax revenues and CZK 0.4 billion increase in 
means-tested benefits, the latter mainly being driven by the income tax bonus. On the other hand, the reform 
can reduce the average tax burden by 0.6 pps. Compared to the self-employed, employees seem to benefit the 
most from the reform. The distributional impact is plotted in Graph I, which presents the percentage change 
in mean annual disposable income by decile vis-à-vis the baseline without reform. 

In  order  to  disentangle  the  impact  of  the  different  elements  of  the  reform,  four  sub-scenarios  have  been 
simulated:  Reform  1  –  only  part  (v);  Reform  2  –  only  part  (iv);  Reform  3  –  only  parts  (i),  (ii)  and  (iii); 
Reform 4 – full reform with all parts (2).  As shown in Table 1, the ceteris  paribus deduction of social and 
healthcare insurance contributions for self-employed people (Reform 1) decreases the average tax-burden for 
this group as compared to employees, which was one of the aims of the full reform. However, this effect is 
not  expected  to  fully  materialise  in  the  full  scenario  (Reform  4).  The  independent  simulations  of  the  other 
components (Reform 2 & 3) could give an indication on the reasons.  Employees, for instance, experience a 
significantly higher decrease of their average tax burden when moving to a standard tax base (Reform 2).  

(1)  EUROMOD  is  the  tax-benefit  microsimulation  model  for  the  EU.  It  simulates  individuals'  and  households'  benefit 
entitlements  and  tax  liabilities  (including  social  security  contributions)  according  to  the  rules  in  place  in  each  Member 
State. Incomes reported in the EU-SILC of 2016 refer to 2015. 
(2) The independent simulation of the reform components serves as a guide to assess independently the parts of the reform 
but remains an approximation. Given the tax system’s non-linearities (i.e. the interplay of the reform’s different parts), the 
full reform scenario cannot be broken down into separate contributions for each of the parts.  
(3) The economic status refers to the current main activity status at the time of the interview. This is determined based on 
how most time is spent.  

19 

TotalEconomic status BaselineReform 1Reform 2Reform 3Reform 4Pre-school0.00.00.00.00.0Self-employed29.6-1.9-0.13.30.4Employee21.60.0-4.55.0-1.0Pensioner1.10.0-0.10.20.0Unemployed7.30.0-1.01.4-0.2Student4.60.0-0.10.30.0Inactive4.70.0-0.21.10.9Sick or disabled0.70.0-0.10.10.0Other3.20.0-0.30.5-0.1All18.3-0.3-3.03.7-0.6Table 1. Average tax burden by economic status (3) (%)Difference w.r.t. the baseline 
 
 
3.2.  FINANCIAL SECTOR 

Financial sector 

largest 

The  Czech  financial  system  is  showing  stable 
profits  and  adequate  capitalisation.  Close  to 
90 %  of  the  system  is  foreign-owned  and  highly 
bank-centric,  with 
five  banks 
the 
accumulating a market share of two thirds of total 
assets.  Banks  are  well  capitalised  and  produced 
stable  results  even  during  the  financial  crisis, 
contributing  over-proportionally  to  their  group 
profits.  Unlike  other  banks  in  the  neighbouring 
countries,  Czech  banks  were  not  affected  by 
foreign  currency  mortgages  or  similar  costly  one-
offs. Insurance companies are also well capitalised 
and  most  of  them  maintain  stable  profitability.  In 
general, the Czech capital market is relatively thin 
compared  to  similar  sized  economies  (see  2018 
Country  report)  but  more  advanced  than  in  most 
new Member States. 

in  Europe 

indicators  suggests 
the 
The  soundness  of 
financial strength. Capital ratios have been stable 
since 2014, with a Common Equity Tier 1 ratio (11) 
above  16 %.  The  strong  credit  growth,  which 
reduces  the  capital  ratio,  is  offset  by  retained 
earnings  and  a  renewed  drop  in  aggregate  risk 
weights  (CNB,  2018).  In  addition,  the  CNB  is 
proactive in hiking capital buffers. It  was the  first 
non-Scandinavian 
to 
supervisor 
introduce  a  countercyclical  buffer  of  0.5 %  in 
2017. This buffer was raised to 1.25 % in January 
2019, with further biannual 25 basis points’  hikes 
announced,  reaching  1.75 %  as  of  January  2020. 
According  to  CNB's  simulations,  banks  have 
sufficient capital cushions overall to accommodate 
forthcoming hikes in the countercyclical buffer and 
support 
in  credit,  assuming 
reasonable  dividend  policies.  However,  this  space 
could  decrease 
to  fall. 
Additionally,  several  banks  have  a  systemic  risk 
buffer  ranging  from  1 to  3 %  of  their  capital. 
Given  the  relatively  good  capital  levels  of  the 
banks, 
for  minimum 
requirements for own funds and eligible liabilities 
is generally considered unproblematic. 

if  profitability  were 

further  growth 

reaching 

targets 

the 

in  June  2018.  Income  on  interest  remains  the 
banks'  main  source  of  profit,  as  interest  rate 
margins  have  been  increasing  in  2018.  The  loan-
to-deposit ratio rose to 99.2 % in Q2-2018 coming 
from  below  80 %  3  years  earlier.  While  acting  as 
net  creditors  to  their  parent  organisations  until 
2012,  Czech  subsidiaries  of  the  major  foreign 
banks  now  borrow  abroad  to  lend  domestically. 
The  cost-to-income  ratio  has  been  constant  over 
the last decade, reaching 48.2 % (12) in June 2018, 
significantly below the EU average. Banks are also 
quite  reactive  in  adapting  administrative  costs  to 
demand fluctuations. 

The non-performing loans (NPL) ratio remains 
low.  On  the  back  of  strong  loan  growth,  the  ratio 
halved between June 2016 (4.6 %)  and June 2018 
(2.2 %)  for  the  system  in  aggregate.  The  NPL  of 
domestically  owned  banks  fell  from  21.9 %  to 
7.2 %  over  that  timeframe  (13).  This  is  a  usual 
pattern  during  periods  of  strong  economic 
expansion  and  may  be  concealing  risks  in  the 
background (CNB, 2018). The NPL coverage ratio 
has  increased  steadily  in  the  last  2  years  reaching 
52 % at the end of Q2-2018.  

Graph 3.2.1:  Financial liabilities growth 

Source: Eurostat 

The profitability rate of Czech banks is among 
the highest in Europe. Return on equity has been 
stable  and  remained  in  double  digits  since  EU 
accession,  with  the  bigger  banks  reaching  14.5 % 

Non-resident  holdings  of  commercial  bank 
deposits  soared  before  the  end  of  the  exchange 
rate  commitment  (Graph  3.2.1).  After  April 
2017, deposit growth slowed but the levels remain 

(11)  This  ratio  is  the  core  measure  of  bank  solvency.  It 
comprises  equity  capital,  retained  earnings  and  mandatory 
reserve funds, divided by risk-weighted assets. 

(12)  EBA data, covering only major banks. 
(13)  Domestically owned banks represent only a small fraction 

of the Czech banking sector. 

20 

-5%0%5%10%15%20%25%2005200720092011201320152017% y-o-yOthersDerivativesGuaranteesEquityLoansDebt securitiesCurrencyDepositsTOTALMIP indicative threshold 
 
                                                           
 
                                                           
3.2. Financial sector 

largely  unchanged.  This  process  was 
the 
counterpart  to  the  CNB  accumulating  external 
assets.  The  central  bank’s  external  reserves  are 
expected  to  remain  stable  in  the  short  term  at 
around 60 % of GDP. While there is a low risk of a 
disorderly  withdrawal  of  foreign  deposits,  a 
gradual  securities’  sell-off  may  be  preventing  the 
appreciation  of  the  Czech  koruna.  The  positive 
interest rate differential makes a sudden outflow of 
deposits held by foreigners unlikely. 

Since  2016,  the  continued  spiral  between 
property  prices  and  mortgage  loans  has  been 
the most significant domestic risk. Private sector 
loans  grew  by  6.7 % (14)  in  the  12  months  to 
September  2018  driven  mainly  by  the  increase  of 
mortgages  (Graph  3.2.2).  In  September  2018, 
mortgages made up 40.6 % of total loans provided 
to  the  private  non-financial  sector  and  23.8 %  of 
Czech  GDP,  slightly  decelerating  since  the  2017 
peak.  The  continued  supervisory  action  taken  by 
the CNB, particularly in terms of macro-prudential 
measures, may explain the trend and ease the risks. 

Graph 3.2.2:  Private credit growth 

these  have  moderated  since  the  end  of  2017, 
growing by 5.7 % year-on-year in Q3-2018. Since 
the  beginning  of  2015,  the  23 %  cumulative 
growth has been one of the highest in the EU and 
has  outpaced  real  wage  growth  by  more  than 
10 pps. As a result, housing affordability has been 
deteriorating. 

Estimates  indicate  moderate  positive  valuation 
gap in the Czech housing market in the range of 
0-10 %. Three  standard  metrics  (15)  of  the  degree 
of  imbalance,  based  on  historical  averages  for 
price-to-income  and  price-to-rent  ratios,  suggest 
little overvaluation of the housing  market in 2017 
(Graph 3.2.3). The highest gap relates to the price-
to-income  ratio  compared  to  historical  average. 
This  estimate  is  close  to  the  CNB's  model-based 
approach,  which  suggests 
in  mid-2018 
apartment  prices  were  around  10 %  above  levels 
consistent with fundamental factors.  

that 

Graph 3.2.3:  Overvaluation gap 

Source: European Central Bank 

Housing market 

Housing  prices  grew  swiftly  in  2017  but  the 
escalation  moderated  in  2018.  According  to 
Eurostat,  deflated  house  prices  in  the  Czech 
Republic  grew  by  9.1 %  on  average  in  2017,  one 
of  the  fastest  growth  rates  in  the  EU.  However, 

Source: European Commission 

According  to  the  CNB,  the  affordability  of 
apartments  declined  between  2015  and  2017. 
This  relates  to  both  price-to-income  and  debt-
service-to-income  ratios  (CNB,  2018).  Some 
analyses  on  the  price-to-income  ratio  (OECD, 
2018)  confirm  this  assessment  and  estimate  that 
affordability  in  Q2-2018  was  very  close  to  the 
2008 price levels. Other sources suggest the Czech 
Republic  is  the  country  with  the  least  affordable 
own  housing  in  2017  in  a  sample  of  12  EU 

(14)  ECB data expressed in CZK. 

(15)  For  more  information  on  the  metrics  see  Philiponnet  and 

Turrini (2017). 

21 

-2.00.02.04.06.08.010.012.0Total privateNFCsHouseholdsMortgage credity-o-y % change-20-15-10-5051015202530000102030405060708091011121314151617% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap 
 
                                                           
 
                                                           
3.2. Financial sector 

growth  has  stabilised  at  around  8 %  year-on-year 
and  is  predicted  to  slow,  in  line  with  stricter 
macro-prudential  rules 
in  October 
2018. 

introduced 

tried 

the  government 

The  CNB  still  lacks  statutory  powers  to  issue 
binding  macro-prudential  recommendations. 
To  upgrade  the  central  bank's  macro-prudential 
powers, 
to  pass  an 
amendment  to  the  Act  on  the  CNB  in  2017. 
However,  the  end  of  the  parliamentary  term 
interrupted the legislative process. The government 
is  expected  to  resubmit  the  amendment  but  the 
political  support  is  not  guaranteed.  The  private 
banking  sector  does  not  fully  support 
this 
amendment,  despite being broadly compliant  with 
the  central  bank's  recommendations.  In  contrast, 
the CNB believes that setting universal conditions 
for  all  lenders  by  law  would  ensure  fair  and 
transparent competition. 

The CNB sets recommendatory caps to protect 
homeowners  and  mortgage 
lenders  against 
negative  equity.  The  recommendations  mostly 
relate to the loan-to-value ratio. Lenders should not 
provide  loans  with  loan-to-value  ratios  above 
90 %. The volume of new loans with ratios of 80-
90 % should be limited to a maximum of 15 % in 
every  quarter.  So  far,  the  compliance  with  these 
rules is relatively high. However, the effectiveness 
of  these  caps  could  be  put  at  risk  if  certain 
circumventive  practices  were  carried  out  such  as 
an optimistic assessment of the collateral value or 
a parallel provision of an unsecured loan to finance 
a purchase. 

The  debt  of  the  borrowers  should  not  exceed 
nine  times  their  net  annual  income.  To  address 
the  risk  linked  to  loans  with  high  loan-to-value 
ratios  and  take  into  account  borrowers'  ability  to 
repay, the CNB has introduced two supplementary 
recommendations  as  of  1 October  2018.  In  terms 
of debt-service-to-income, applicants should spend 
no more than 45 % of their net monthly income on 
debt  service.  The  debt-to-income  rate  was  set  at 
nine  times  the  net  annual  income.  Furthermore, 
only 5 % of the new loans provided in a trimester 
may  exceed  the  limits  on  the  debt-to-income  and 
debt-service-to-income  ratios.  Through  the  new 
measures,  the  CNB  intends  to  reduce  borrowers’ 
vulnerability  and  cool  the  housing  market.  The 
three  recommendations  are  complementary  and 
their  interaction  could  lead  to  even  stricter  limits. 

countries (16). Affordability of housing may further 
deteriorate  due  to  increasing  interest  rates  on 
mortgages. 

Affordability  problems  are  most  acute 
in 
Prague and other large cities. As more than 60 % 
of  residential  property  transactions  in  the  country 
are  concentrated  in  Prague,  developments  in  the 
capital city considerably affect national aggregates. 
Bid  prices  for  new  flats  in  Prague  increased  by 
69 % between Q1-2015 and Q3-2018, 38 pps more 
than  in  the  rest  of  the  country.  Both  demand  and 
supply  factors explain this price  escalation. While 
demand-side  factors are broadly spread across the 
country, supply constraints are particularly acute in 
Prague and other large cities such as Brno.  

Graph 3.2.4:  Deflated house prices 

Source: Eurostat 
Note: One of 14 scoreboard indicative thresholds, covering 
the major sources of macroeconomic imbalances: y-o-y 
changes in house prices relative to a Eurostat consumption 
deflator, with a threshold of 6 % 

Good  economic  conditions  have  boosted  the 
demand  for  residential  properties  and  lead  to 
an increase in mortgage loans. Overall, the stock 
of loans for house purposes increased by CZK 92.2 
billion  in  2017  reaching  a  total  amount  of  CZK 
1 152  billion  (+8.7 %  compared  to  the  end  of 
2016).  The  proportion  of  homes  occupied  by  an 
owner  with  a  mortgage  or  a  loan  has  almost 
doubled  from  2008  (11.9 %)  to  2017  (20.7 %),  4 
pps  below  the  EU  average.  Mortgage  lending 

(16)  According 

to  Deloitte's  Property 

(2018),  a 
standardised new dwelling in the Czech Republic costs the 
equivalent to 11.3 years of average gross annual salaries. 

Index 

22 

80859095100105110115120125130-6%-4%-2%0%2%4%6%8%10%12%2012Q12012Q32013Q12013Q32014Q12014Q32015Q12015Q32016Q12016Q32017Q12017Q32018Q12018Q3House price indexy-o-y growthMIP thresholdy-o-y % change2015=100 
 
                                                           
3.2. Financial sector 

investment  in  construction  obtained  from  the 
national  accounts  have  been  buoyant  during  that 
period.  These  dynamics  may  change,  as  the 
number  of  started  dwellings  decelerated  in  2018 
and its year-on-year growth rate turned negative (-
1.6 %)  in  Q3-2018.  Moreover,  labour  shortages 
and  associated  wage  pressure  are  becoming  a 
particularly  acute  constraint  in  the  construction 
sector. 

Burdensome  planning  procedures  continue  to 
limit  housing  supply.  Demand  has  continuously 
outstripped supply in some regions, particularly in 
Prague  and  other  large  cities,  contributing  to  the 
increase  in  house  prices.  Although  completion  of 
new  dwellings  is  enough  to  absorb  the  low 
demographic  growth  of  the  country,  household 
size  fell  to  2.37  persons  in  2017  (17).  Meanwhile, 
the  expansion  of  Airbnb  and  other  shared 
accommodation  companies  helps  to  explain  the 
rise  of  real  estate  prices  in  Prague.  Because  of 
sustained  housing  demand  growth,  sufficient 
supply  could  mitigate  upward  pressures  on  prices 
and affordability. 

The  flow  of  newly  issued  building  permits 
remains far below historic averages. The number 
of  building  permits  for  dwellings  issued  in  2017 
was  3.4 %  higher  than  in  2016  but  was  the  fifth 
lowest in the last 20 years. Although the trend has 
been  positive  since  2015,  the  outturn  of  2017 
noticeably  decelerated  compared  to  2016  (7.3 %). 
The outlook is not positive, as 2018 is expected to 
end in the red (-3.1 % year-on-year growth in Q3-
2018).  In  this  context,  a  new  construction  law  is 
under preparation (see Section 3.4). The regulatory 
burden  is  also  augmented  by  regional  disparities 
and  planning  rigidities.  A  new  metropolitan  plan 
for  Prague  is  under  discussion,  to  replace  the  old 
one  adopted  back  in  1999.  On  average,  21 
procedures  need  to  be  undertaken  to  receive  a 
building  permit  in  the  country,  compared  to  12.5 
across OECD countries (World Bank, 2018a). 

(17)  Between 2012 and 2017 the number of households   

increased by around 117 000, while the population growth 
was around 80 000. 

Certain  private  banks  suggest  the  new  debt-
service-to-income  limits are the  most constraining 
factor  as  they  prevent  standard  housing  loan 
applicants from obtaining the maximum value of a 
loan.  

Interest rates for new mortgages have increased 
slightly but are expected to have only a limited 
effect  on  demand.  The  average  rate  has  moved 
from an historical low of 2.1 % in November 2016 
to  2.6 %  in  September  2018  in  line  with  the 
increase  of  the  2-weeks  repo  interest  rate from 
0.05 % to 1.75 %. Thus, new borrowers could face 
higher  debt  service  costs  due  to  higher  mortgage 
rates and the fact that, until recently, their incomes 
have grown more slowly than housing prices.  The 
the 
new 
recommendation that lenders should assess clients' 
debt  servicing  capacity  for  a  scenario  of  a  2  pps 
lending 
future 
borrowers.  Mortgage  rates  are  still  relatively  low 
and  attractive  for  clients,  both 
terms  of 
consumer price inflation and income growth.  

increase  should  protect 

debt-service-to-income 

limit 

rate 

and 

in 

Graph 3.2.5:  Housing supply (4 quarters aggregate) 

Source: Czech Statistical Office (CZSO) 

Recent  data  on  started  dwellings  and  building 
permits indicate a drop in the coming quarters 
(Graph 3.2.5). The number of completed dwellings 
grew  by  4.6 %  year-on-year  in  2017  based on  the 
nationwide  average,  but  declined  by  4 %  in 
Prague.  The  completion  of  dwellings  accelerated 
in  the  three  first  quarters  of  2018  and  reached  a 
20.2 %  year-on-year  growth  in  Q3-2018.  As  a 
figures  on  construction  output  and 
result, 

23 

1520253035404550552005Q12005Q42006Q32007Q22008Q12008Q42009Q32010Q22011Q12011Q42012Q32013Q22014Q12014Q42015Q32016Q22017Q12017Q42018Q3ThousandsThousandsDwellings completedDwellings startedResidential building permits 
 
 
                                                           
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market 

The  Czech  labour  market  is  one  of  the  best 
performers  in  the  EU  but  is  increasingly  tight. 
The  employment  rate  of  those  aged  20-64  has 
continued to rise and  reached 80.0 % in Q3-2018. 
The activity rate reached a new peak of 81.9 % in 
Q3-2018. The unemployment rate  is the  lowest in 
the  EU,  at  a  record  low  of  2.1 %  in  Q4-2018. 
Long-term unemployment (0.7 % in Q3-2018) and 
youth  unemployment  (7.6 %  in  Q3-2018)  have 
declined  to  below  pre-crisis  levels.  The  share  of 
young people (aged 15-24) neither in employment 
nor in education and training declined from 7.5 % 
in 2015 to 6.3 % in 2017. 

Graph 3.3.1:  Labour market developments 

Source: European Commission 

in  Q3-2018.  It 

Labour  shortages  can  limit  economic  growth. 
The job vacancy rate, reflecting the unmet demand 
for  labour,  was  one  of  the  highest  in  the  EU  in 
2017.  It  grew  from  3.6 %  in  Q2-2017  to  5.9 %  in 
Q3-2018. The  number  of  job  vacancies  was  more 
than  twice  as  large  as  the  number  of  unemployed 
than 
people 
eightfold  since  2010  to  270 588  in  Q3-2018. 
Shortages 
in 
especially 
manufacturing and construction - in Q4-2018 45 % 
of manufacturers cited labour shortages as a factor 
limiting  production  (18)  and  investment  (EIB, 
2018).  The  country  has  the  highest  share  of 
enterprises  in  the  EU  (79 %)  reporting  difficulties 
in hiring ICT specialists. 

increased  more 

pronounced 

are 

Expected  demographic  changes  will  have  a 
significant  impact  on  the  labour  market  and 
public  finances.  The  size  of  the  working  age 
population  has  been  gradually  declining,  falling 
from  7.4  million  in  2010  to  6.9  million  in  2017. 
Until recently, the employment rate  increased due 
to declining unemployment and increasing activity 
rates in view of high demand and wage increases. 
While  the  decline  in  working-age  population 
cannot  be  eliminated,  its  impact  can  be  mitigated 
and the potential labour force increased by tapping 
into the labour force potential of those less active, 
including  mothers  of  young  children,  the  low-
skilled, older  workers, the people  with disabilities 
and  Roma.  Foreign  workers  could  also  help 
alleviate labour shortages. 

The  labour  market  expansion  can  improve  the 
participation  of  underrepresented  groups. 
Women  are  overrepresented  among  the  inactive, 
having an employment rate well below that of men 
(70.5 % vs 86.3 % in 2017). These differences are 
higher among  women  younger than 40. The  share 
of women choosing inactivity due to care is one of 
the highest in the EU (84 % of the inactive women 
aged  25-34  and  70 %  of  those  aged  35-44).  The 
activity  rate  of  the  low-skilled  (12.1 %  of  the 
labour  force)  has  stagnated  at  around  30 %  since 
EU  accession  and  has  not  changed,  despite  the 
economic boom (Graphs 3.3.2). Their employment 
rate increased to 49.2 % in 2017 but remains below 
the  employment  rate  of  medium-  (79.4 %)  and 
high-skilled (84.2 %) groups. The employment rate 
of  older  workers  (55-64),  at  62.1 %,  lags  behind 
that of younger workers (86.7 % for those aged 25-
54),  as  does  their  activity  rate  (63.6 %  versus 
89.1 %).  There  is  also  a  large  employment  gap 
between people with and without disabilities (32.8 
pps compared to the 25.8 pps at EU level).  

to 

the 

contributing 

Female  labour  force  participation  falls  with 
gender 
childbirth, 
employment  and  pay  gap.  The  employment  gap 
between women with a child below the age of six 
and women without children was 48.3 pps in 2017, 
the highest at the EU level. Evidence suggests that 
gender inequalities persist throughout their career, 
as the average hourly wage of a  man in 2016 was 
21.8 %  higher  than  that  of  a  woman.  Part  of  this 
difference  suggests  a  potential  important  role  for 
gender discrimination. 

(18)  European Business and Consumer Survey  

24 

73747576777879808182051015202520012002200320042005200620072008200920102011201220132014201520162017%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs) 
 
 
                                                           
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is designed as a compass for a renewed process of upward convergence 
towards better working and living conditions in the EU. It sets out 20 essential principles and rights in the 
areas of equal opportunities and access to the labour market; fair working conditions; and social protection 
and inclusion (1).  

the 

the 

and 

lowest 

unemployment 

The  Czech  Republic  performs  well  on  most 
indicators of the Social Scoreboard supporting 
the  European  Pillar  of  Social  Rights.  The 
Czech  Republic  has 
level  of 
unemployment in the EU (2.1 % in Q4-2018) and 
youth 
long-term 
unemployment  have  further  declined  to  below 
pre-crisis  levels.  The  risk  of  poverty  or  social 
exclusion and the degree of income inequality are 
the  Czech  Republic.  
among 
However, the risk of poverty would increase by at 
least 4 pps if indebtedness was taken into account. 
Challenges  remain  in  relation  to  the  equality  of 
opportunities. 
socioeconomic 
background strongly affects student performance. 
The  quality  of  the  education  system  could  be 
promoted  by  policies  to  ensure  the  inclusion  of 
vulnerable  groups,  to  increase  the  attractiveness 
of 
increase 
participation in adult learning.  

teaching  profession  and 

education, 

lowest 

the 

In 

in 

to 

combines  a 

The  Czech  Republic 
low 
participation in early childhood education and 
care (4.7 % of children younger than 3 years in 
2016) with a high gender employment gap (the 
employment  rate  of  women  is  15.8 pps  below 
that of men, for an EU average of 11.5 pps). In 
the tightening labour market and amid significant 
gender  inequality,  the  provision  of  affordable 
childcare  and  reducing  the  tax  wedge  for  single 
earners  can  be  important  policies,  supporting  the 
Pillar  principles  on  ‘work  life  balance’  and 
‘childcare and support to children’. 

The Czech Republic has been undertaking reforms and using the support from the European Social   
Fund  (ESF)  to  substantially  increase  the  availability  of  childcare.  Compulsory  participation  in  pre-
school  for  children  aged  5  and  the  entitlement  for  a  place  for  children  from  the  age  of  3  have  been 
introduced. Altogether approximately 18 000 new places in childcare facilities were created with the support 
of EU funds over the last three years, which reduced the shortage by half. Moreover, an ESF pilot was up-
scaled  for  micro-nurseries  for  children  from  6  months  to  4  years  of  age  and  more  will  be  built  in  future. 
Further  plans  include  legislation  changes  and  financing  from  the  national  budget  to  make  new  types  of 
childcare facilities sustainable and to broaden the creation of places for children younger than 3 years.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission:  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

25 

Early leavers from education and training (% of population aged 18-24)Better than averageGender employment gapTo watchIncome quintile ratio (S80/S20)Best performersAt risk of poverty or social exclusion (in %)Best performersYouth NEET (% of total population aged 15-24)Best performersEmployment rate (% population aged 20-64)Best performersUnemployment rate (% population aged 15-74)Best performersLong term unemploymentBetter than averageGDHI per capita growth On averageNet earnings of a full-time single worker earning AWTo watchImpact of social transfers (other than pensions) on poverty reductionBetter than averageChildren aged less than 3 years in formal childcareCritical situationSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsBetter than averageEqual opportunities and access to the labour marketSOCIAL SCOREBOARD FOR THE CZECH REPUBLICSocial protection and inclusionMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraftJoint Employment Report 2019, COM (2018)761 final. Data update of 29 January 2019.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                      Dynamic labour markets and fair working conditions 
 
 
 
3.3. Labour market, education and social policies 

allowance  when  the  secondary  earner  has  an 
annual  income  above  CZK  68 000. Together  with 
the cost of childcare, this helps explaining the low 
female labour market participation.  

Policy responses, such as increasing the number 
of  childcare 
facilities,  are  promising.  By 
November  2018,  EU  funds  had  already  supported 
850  child  groups  with  a  capacity  of  more  than 
11 000  places  for  children  from  1  to  6  years,  276 
places  in  micro-nurseries  (for  children  aged  6 
months to 4  years) and almost 5 000 in children’s 
this  significant 
clubs  were  created.  Despite 
improvement,  this  capacity  was  insufficient  to 
meet the estimated unmet demand for childcare of 
14 000  children  below  3  years  old 
the 
2017/2018  school  year  (Hora  et  al.,  2018).  Thus, 
further  EU  funding  is  planned  (including  on 
infrastructure)  with  existing  facilities  financed 
from the national budget. 

in 

More  flexibility  in  parental  leave  may  increase 
female  labour  market  participation.  The  recent 
proposal  to  make  the  maximum  duration  of 
parental  leave  more  flexible  and  to  introduce 
'shared jobs'  to allow  mothers  with  small children 
and other carers to work part-time  is a step in the 
right  direction.  However,  there 
is  scope  for 
investment in further measures in this area. 

Sufficient  and  coordinated  provision  of  formal 
accessible,  high  quality  and  sustainable  long-
term  care  services  remains  a  challenge.  Their 
underdevelopment 
another  major 
impediment  for  women  to  stay  in  employment. 
The  three-month  caretaker  leave  introduced  in 
June  2018  has  not  met  expectations  as  only  400 
have  benefitted  from  the  new  right,  far  below  the 
30 000 target originally estimated by authorities.  

can 

be 

A  complex  combination  of  socio-economic 
factors  negatively  impacts  the  labour  market 
performance  of  the  low  skilled.  Low-skilled 
workers represent a relatively small group (7 % of 
the  workforce 
in  2017).  However,  with  an 
unemployment rate of 12.6 % and an employment 
rate  of  43.7 %,  they  perform  below  average  when 
compared to the rest of the population and the low 
skilled  in  other  EU  countries.  This  group  faces 
disincentives  to  work  such  as  the  high  tax  wedge 
on  low  earners,  especially  in  the  case  of  women 
with  young  children.  Their  participation  tax  rates 
are  as  high  as  50 %  (see  Section  3.1).  Moreover, 

Graph 3.3.2:  Employment rate by age and education level 

in 2017 

Source: European Commission 

Parental  leave  rules,  lack  of  formal  childcare 
and  caring  responsibilities  result  in  women's 
long  career  breaks.  Long  parental  leave  (rarely 
taken  by  men)  and  a  lack  of  affordable  childcare 
labour  market 
contribute 
participation.  The  Social  Scoreboard  of 
the 
European  Pillar  of  Social  Rights  flags  the  formal 
childcare  enrolment  of  children  aged  0-3  (4.7%), 
which  remains  significantly  below  the  Barcelona 
target of 33%, as a critical situation.  

female 

lower 

to 

Public  spending  on  family  benefits  is  above 
average but childcare costs are high. While cash 
benefits  and  tax-credits  are  relatively  high,  public 
spending on services such as childcare is only half 
of  the  EU  and  OECD  averages.  In  the  past  two 
decades,  the  figure  has  hardly  changed,  hovering 
around 0.5 % of GDP. Families have to bear high 
out-of-pocket  childcare  costs:  at  17 %  of  the 
is 
earnings, 
average 
household 
significantly  higher 
the 
than 
neighbouring  countries  (19).  For  single  parents 
earning below the average wage, the net cost goes 
as  high  as  21.4 %  of  their  earnings,  one  of  the 
highest  rates  in  the  EU  (20).  A  secondary  earner 
currently  faces  tax  disincentives  to  work,  as  the 
the  dependent  spouse 
primary  earner 

the 
cost 
in  many  of 

loses 

(19)  Net childcare costs for a two-earner two-child (aged 2 and 
3)  couple  family  with  full-time  earnings  at  100+67 %  of 
earnings, as a % of average earnings in 2015 (OECD). 
(20)  Net  childcare  costs  for  a  two-child  (aged  2  and  3)  single-
parent  family  with  full-time  earnings  at 50 %  of  earnings, 
as a percentage of average earnings in 2015 (OECD). 

26 

0102030405060708090100Less than primary and lower secondary educationUpper secondary and post-secondary non-tertiary educationTertiary education% of population 
 
                                                           
3.3. Labour market, education and social policies 

the low skilled are often employed in low paid jobs 
and  under  poor  working  conditions.  Health  and 
abuse  issues  and  social  background  create  more 
obstacles to employment. 

Indebtedness  is  an  important  impediment  to 
employment. It is high in regions with the largest 
proportion of low-skilled people. Overall, 830 000 
people  were  affected  by  enforcement  orders  in 
2017  (9.7 %  of  people  over  15  years).  In  some 
regions,  like  Ústecký,  this  rate  is  over  20 %. This 
can  generate  a  high  prevalence  of  undeclared 
work.  When  entering  declared  employment  most 
of  the  salary  is  seized  to  repay  the  creditors, 
creating  a  financial  motivation  for  workers  not  to 
declare  their  income.  On  the  employers'  side, 
their 
addressing  creditors' 
administrative  burden,  decreasing  the  motivation 
for regular employment (Hora et al., 2018).  

increases 

requests 

Lack  of  specific  measures,  low  participation  in 
training  and  subsidised  jobs  further  hinder 
employment  of  the  low  skilled  and  the  people 
with  disabilities.  The 
job  subsidies  do  not 
compensate for the lack of motivation on both the 
employer  and  unemployed  side.  Most  labour 
market  interventions  do  not  specifically  address 
the  issues  of  the  low  skilled  and  of  people  with 
disabilities.  While  (often  used)  public  works  have 
proved  insufficient,  other  active  labour  market 
policy  programmes  are  not 
robust  enough. 
Investment  in  a  comprehensive  individualised 
approach,  taking  into  account  health  conditions 
and  other  disadvantages  (old  age,  low  skills, 
family  obligations,  and  abuse  issues),  tailored 
training  to  overcome  skills  barriers,  and  effective 
counselling 
in 
address 
combination with social work, is needed.  

indebtedness 

to 

the 

labour  market  policies  deepen 

A  limited  range  and  inefficient  targeting  of 
active 
the 
labour  market.  The 
segmentation  on 
effectiveness of the three principal programmes for 
the unemployed were analysed in a study covering 
the  2014-2016  period  (Horakova  and  Sirovatka, 
training 
2018;  Hora  et  al.,  2018).  Overall, 
programmes  as  well  as  subsidised  jobs  in  the 
private  sector  tend  to  target  those  with  fewer 
barriers in the labour market instead of supporting 
those most in need. Only one in five participants in 
subsidised 
long-term  unemployed. 
Instead, the groups further from the labour market, 
with  combined  handicaps,  are  mostly  placed  in 

jobs  were 

public  works  although  they  do  not  contribute  to 
permanent  employment.  The 
the 
number  of  social  enterprises  is  promising  for 
integration  of  underrepresented  groups,  although 
the regulatory framework is still lacking. 

increase 

in 

The  business  model  of  public  employment 
services does not provide individualised support 
to  vulnerable  groups.  A  single  point  of  contact 
for  distributing  employment  and  social  benefits 
and  services  was  established.  However, 
its 
potential  for  outreach  and  activation  is  not  fully 
used, also due to the limited interoperability of the 
IT platform, which represents room for investment. 
The 
registered 
individualised 
jobseekers  has  not  been 
implemented  as  a 
universal  measure  and  depends  largely  on  ESF 
funding.  A  basic  form  of  profiling  is  applied  but 
has a  more intuitive than formalised or systematic 
nature.  Investment 
in  modernising  of  public 
employment  services  and  a  broader  range  of 
measures would offer the right intervention mix to 
jobseekers.  

approach 

for 

and 

employment 
is 

services 
lacking.  Setting 

A systemic framework for cooperation between 
other 
public 
stakeholders 
common 
objectives  for  public  employment  services,  non-
governmental  organisations  and  other  partners  in 
the labour market and investing in developing their 
capacity  could  tackle  weaknesses  in  addressing 
barriers faced by underrepresented groups.  

Higher  activity  rates  for  older  workers  can 
tackle  labour  shortages  but  their  skills  may 
need  to  adapt.  A  declining  labour  force  means 
that  workers  will  need  to  adapt  to  longer  careers. 
This  implies  investment  in  health  and  adapting 
their  skills  to  the  changing  work  environment. 
Work places also need to be adapted to age-related 
needs. 
in 
employment,  health,  social  work  and  pension 
reforms  are  needed 
the  expected 
to 
demographic change (with the share of those aged 
55-64  years  increasing  from  19.5 %  in  2016  to 
22 % in 2030) (European Commission, 2018b). 

tailored  measures 

Therefore, 

face 

The  tight  labour  market  and  administrative 
burden  induces  risks  of  increasing  undeclared 
work.  Many  companies  react  to  the  situation  by 
hiring  workers  illegally,  mostly  from  non-EU 
countries. The association of employment agencies 
estimate  that  around  250 000  people  are  working 

27 

 
3.3. Labour market, education and social policies 

an  education  programme  in  basic  coding  and 
robotics and, if successful, can become standard in 
all schools by 2020. 

A  comprehensive  skills  strategy  could  help  to 
adapt the labour force to future changes. Such a 
strategy  should  also  target  non-EU  nationals,  as 
this  could  contribute  to  further  reducing  labour 
shortages.  Although  various 
initiatives  were 
developed  over  recent  years,  these  have  not  yet 
grown  into  a  genuine  comprehensive  system  for 
producing  and  interpreting  skills  intelligence.  In 
addition,  a  single  national  Skills,  Competences, 
Qualifications  and  Occupations  classification  has 
not been finalised (see Country Report 2018).  

Plans  to  further  develop  vocational  education 
and  training  have  not  yet  been  implemented. 
Investment  in  the  modularisation  reform  of  the 
curricula  could 
flexibility  and 
adaptability  of  vocational  education  and  training 
systems 
labour  market  needs. 
Furthermore,  remunerating  apprentices  could  help 
prevent early programme leaving.  

to  changing 

increase 

the 

Social  partners  play  a  strong  role  in  raising 
awareness  about  labour  and  skill  shortages. 
Stakeholder  engagement  and  local  and  regional 
dialogues  between  policymakers,  employers,  and 
education  and 
to 
identifying  needs  and  increasing  the  relevance  of 
vocational  education  and  training  and  higher 
education.  Investment  in  strengthening  the  social 
dialogue could help to achieve the objectives. 

training  providers  are  key 

Social policy 

The share of people at risk of poverty or social 
exclusion (AROPE) is low but differences across 
population  groups  and  regions  have  increased. 
The AROPE is one of the lowest in the EU, having 
decreased  further  in  2017  by  1.1  pp.  to  12.2 %. 
The  country  performs  above  EU  average  when  it 
comes  to  the  adequacy  of  its  minimum  income 
scheme, which in 2016 represented around 60.6 % 
of  the  poverty  line  and  56.5 %  of  a  low  wage 
earner  (compared  to  an  EU  average  of  57.5  and 
46.1 %)  (21).  However,  among  the  elderly  (aged 
65+), the  AROPE share increased from 10.1 % to 

(21)  According  to  the  results  of  the  2018  Benchmarking 
exercise  in  the  area  of  Minimum  Income  of  the  Social 
Protection Committee of the European Commission. 

permits. 

employment 

illegally,  even  though  only  2 900  illegal  workers 
were detected last year. The bureaucracy related to 
work and residency permits may push law-abiding 
immigrants  into  illegal  work.  Their  situation  is 
often  not  regularised  due  to  the  absence  of 
appropriate 
The 
‘employment  card’  approach,  combining  both  the 
residence  and  work  permit,  resulted  in  a  slight 
decline  in,  the  still  high,  administrative  costs. 
Foreign  workers  also  often  work  without  proper 
contractual  arrangements,  when  their  employment 
relations  at  least  border  on  regular  long-term 
employer-employee  relations.  Investment  in  their 
integration,  accelerating  immigration  procedures, 
reducing  the  bureaucracy  and  modernisation  of 
labour  inspectorate  could  help  to  address  the 
issues.  

is  high  on 

Preparing  the  labour  market  for  technological 
change 
the  political  agenda. 
Investment needs to remain vigorous, underpinned 
by a revival of construction activity, greater use of 
EU  funding,  the  need  to  compensate  for  labour 
shortages  and  a  general  trend  towards  industrial 
to 
automation.  Indeed, 
support the transformation of the national economy 
towards higher-value added production, which can 
increase  labour  productivity  and  innovation.  This 
in turn could help address the problem of relatively 
low wages while maintaining competitiveness.  

investment 

is  needed 

jobs  will 

Qualitative  skills  mismatches,  due  to  future 
automation  and  robotisation,  could  arise, 
notably  in  the  digital  sector.  Within  the  next  15 
years,  the  number  of  jobs  disappearing  due  to 
technological  change  (450 000)  is  expected  to  be 
compensated  by  demographic  prospects  (-400 000 
require  new 
people).  The  new 
competences  and  large  investment  particularly  in 
digital  skills.  According  to  the  Digital  Economy 
and  Society  Index,  only  24%  of  Czechs  have 
above basic digital skills, while the EU average is 
31%.  Deployment  of  high-level  skills  and  closer 
cooperation with the business sector would enable 
the  diffusion  and  uptake  of 
innovation  and 
industrial  transformation.  Investments  in  training 
and  education  could  facilitate  such  economic 
transition  and  increase  productivity  of  workers. 
Promoting  adult  learning  and  lifelong  learning 
under  the  Government's  Strategy  and  Action  Plan 
Work/Education 4.0 can support employability and 
help to avoid a structural qualitative mismatch. For 
example,  the  ESF-funded  project  PRIM  promotes 

28 

 
                                                           
3.3. Labour market, education and social policies 

enforcement  charges 
for  minor  debts  and 
difficulties  in  implementing  a  debt-relief  scheme, 
hinder preventing or tackling over-indebtedness.  

The  legislation  on  debt-relief,  under  discussion 
for  more  than  two  years,  was  adopted  in  a 
lighter version. While it can still improve the debt 
relief procedure, two major changes to the current 
legislation were not adopted. The new legislations 
keeps  the  requirement  to  pay  off  at  least  30%  of 
one’s liabilities within the 5 year debt relief period.  
The  proposal  to  make  the  debt  relief  mechanism 
more  flexible  for  debtors  who  are  able  to  pay 
higher instalments was not included. 

There is a growing number of socially excluded 
localities.  Housing  exclusion  and  homelessness, 
high  indebtedness  and  unemployment  affect  the 
most  vulnerable  groups,  including  Roma.  The 
number  of  socially  excluded  localities  has  almost 
doubled in 2006-2014 but in the Moravskoslezský 
and  Karlovarský  regions  it  has  more  than  tripled 
(see  Country  Report  2015).  Recently, 
the 
inhabitants  of  socially  excluded  localities  have 
been  moving  to  more  remote  municipalities  with 
less functional infrastructure.  

12.6 % 
regional 
(Graph  3.3.3).  Moreover, 
differences are high, with the highest levels seen in 
the Moravskoslezský and the Severozápad regions. 
There is also a worsening trend in these regions on 
other  indicators  such  as  education  outcomes,  the 
number of socially excluded localities and persons 
living in them and access to health care. 

Graph 3.3.3:  Age groups at risk of poverty or social 

exclusion in 2017 

Source: European Commission; EU-SILC 

account 

enforcement  proceedings 

The  increase  in  private  indebtedness  could 
potentially increase the risk of poverty. If taking 
into 
and 
insolvencies,  the  proportion  of  poor  people  (22) 
would increase by about 4 pps (or 300 000 adults). 
However,  the  statistics  consider  income  before 
debt  deductions,  which  is  higher  than  the  actual 
take-home  pay.  If  indebtedness  was  taken  into 
levels  of  poverty  would  be 
account,  higher 
observed, notably in more deprived regions.  

Over-indebtedness  and  property  seizures  have 
multiple  causes,  notably  unpayable  mortgage 
loans.  High  mortgage  loans  related  to  rising 
housing costs (see Section 3.2), high consumption 
on  credit,  failed  business  projects,  lack  of  social 
capital, poor financial literacy, and loss of income 
from  economic  activity  are  among  the  causes  on 
the  debtor  side.  As  for  the  creditors,  insufficient 
screening of loan applicants is highlighted. Lastly, 
the  institutional  set-up  via  arbitration  clauses, 
difficulties in penalising usury, regulation allowing 
deliberate  abuse  of  the  system  by  creditors,  high 

(22)  Calculated using adult population data. 

Housing  exclusion  and  homelessness  are 
increasing among low-income households, while 
related policies are lacking implementation. The 
draft Act on Social Housing, which was supposed 
to  set  eligibility  and  quality  criteria  for  access  to 
social  rental  housing,  was  not  adopted  in  2018. 
The  current 
legislation  does  not  sufficiently 
address  the  lack  of  affordable  and  quality  social 
housing  and  its  negative  social  impact  and  there 
are  no  plans  to  revise  it  until  2023.  Instead,  the 
government  plans  to  replace  it  with  a  subsidy-
credit  programme  called  ‘Construction’.  This 
program  would  finance  social  housing  for  people 
at  risk  of  exclusion,  but  above  all  accessible 
housing  ‘in  the  public  interest’,  e.g.  to  attract 
bottleneck public professions in the municipalities. 
However, 
integrated 
approach  combining  social  services  with  housing, 
despite the proven success of piloted ESF projects, 
such  as  Rapid  Rehousing.  Regional  social 
disparities were also supposed to be addressed in a 
coordinated approach of the ‘RESTART’ strategy. 
However, implementation of the social aspects has 
been  limited  due  to  lack  of  political  support. 
Further  investment,  including  in  food  and  basic 

the  proposal 

lacks  an 

29 

0510152025302005200620072008200920102011201220132014201520162017% of populationChildren (<18y)Working age (18-64)Elderly (65+) 
 
                                                           
3.3. Labour market, education and social policies 

years of teaching. Low participation in continuous 
professional development is reportedly linked to a 
lack  of  incentives  and  low  impact  on  careers  as 
well as being of little relevance to teachers’ needs. 
This  relates  particularly  to  differentiated  types  of 
teaching  according  to  pupils’  needs,  poor  offer  of 
distance-learning and absence of compensation for 
replacement teachers.  

their 

career 

ESF projects support teachers at the beginning 
of 
continuous 
and 
professional  development.  They  also  contributed 
to  finalising  standards  for  university  programmes 
that prepare future teachers. A special fund enables 
education for more future teachers. 

their 

While  below  the  EU  average,  the  early  school 
leaving  rate  has  continued  to  increase  since 
2010. At 6.7 % in 2017, the rate exceeds the 5.5 % 
national target  for 2020. Wide regional disparities 
and  a  high  proportion  of  early  leavers  among 
Roma  pupils  (57  %  in  2016  among  the  Roma 
families  that  participated  in  the  survey)  call  for 
strengthened  analysis  and  targeted  measures  (see 
Country  Report  2018,  FRA,  2016).  This  trend 
contrasts with the steadily decreasing EU average. 
The  most  affected  schools  have  less  qualified 
teachers  and  high  staff  turnover.  In  2018,  a  study 
(Bicakova  and  Kaliskova,  2018)  showed  that 
young people dropping out of school are attracted 
by  the  current  easy  access  to  paid  employment. 
However,  they  often  end  up  in  low  paid,  low 
quality  and  short-term  jobs. Thus,  they  add  to  the 
number of the low-skilled unemployed. Incentives 
to attract young  people back to education, as  well 
as  prevention  measures  and  second  chance 
education are under discussion.  

Socio-economic  inequalities  in  school  outcomes 
have increased in recent years. The share of low 
achievers  in  science  and  reading  among  15-year-
olds  has  risen  significantly  since  2012.  The  gaps 
between  socio-economic  groups  and  between 
schools are increasing and are reflected in regional 
disparities.  The  selectivity  of  the  school  system 
and  early  tracking  tend  to  increase  inequalities. 
Only 18 % of children whose parents did not attain 
tertiary  education  obtain  a  tertiary  degree  and,  in 
general, are less likely to graduate from vocational 
programmes.  The  authorities  are  reviewing  the 
national  curricula 
increase  effective  equal 
opportunities and better focus on skills needed for 
future  jobs.  As  there  are  no  incentives  to  attract 

to 

material 
socioeconomic 
for 
integration of the socially excluded is also needed. 

assistance 

the 

Health  status  has  improved  recently  but  there 
are  regional  disparities,  correlating  with  the 
level  of  unemployment,  among  other  things. 
While  overall  self-reported  unmet  medical  needs 
are  among  the  lowest  in  the  EU,  the  unmet  needs 
due  to  distance  to  health  care  are  above  the 
average. Overall health status is still below the EU 
average and varies significantly by region (e.g. life 
expectancy  at  birth  for  both  men  and  women  can 
differ by more than 4 years). These differences are 
largely due to socio-economic and behavioural risk 
factors  such  as  alcohol  consumption.  There  is  a 
significant  negative  correlation  between  (long-
term)  unemployment,  poor  health/disability  and 
lower  life  expectancy  (OECD,  2018;  Hora  et  al., 
2018). To contribute to better health outcomes, the 
health 
further 
investment  in  primary  care  and  integrated  care 
including  necessary 
in 
laggard regions (see Section 3.1).  

system  would  benefit 

infrastructure  notably 

from 

Education and skills 

the 

lowest  both 

The  general  government  expenditure  on 
education as a share of GDP decreased and it is 
now  below  the  EU  average  (4.5 %  vs  4.7 %  in 
2016).  Expenditure  per  student  at  all  education 
levels  was  among  the  lowest  in  the  EU  in  2015. 
Teachers’  and  school  principals’  salaries  are 
internationally  and 
among 
compared to other workers with tertiary education. 
The  15 %  salary  increase  initially  planned  for 
September  2018  was  postponed  to  January  2019, 
while the Chamber of Deputies and employers call 
for further increases. Announcements on increases 
do  not  mention  a  timeline.  Public  funding  for 
higher education has increased in 2019 with scope 
for further investment.  

The teaching profession faces severe challenges. 
These  include  shortages,  demographic  challenges, 
weak  education  governance,  low  prestige,  low 
salaries  and  limited  development  opportunities. 
There  is  a  shortage  of  qualified  teachers  in 
particular 
in  primary  education.  Besides  low 
salaries,  there  is  no  career  system  for  teachers, 
leading to a flat career structure. Teachers also do 
not  receive  sufficient  training  in  the  classroom 
during  their  initial  education.  These  elements 
contribute to the high drop-out rate during the first 

30 

 
3.3. Labour market, education and social policies 

women.  The  employment  premium  of  a  tertiary 
education  degree  is  the  highest  in  the  EU  but 
completion  rates  are  low  (European  Commission, 
2018c).  Only  about  1 %  of  students  receive  a 
‘social  scholarship’  although  such  incentives  may 
contribute  to  reducing  inequalities  in  access  to 
higher education (European Commission/ EACEA/ 
Eurydice, 2017). Also, the scholarship amounts for 
Ph.D. students are below the EU average.  

The  2016  higher  education  reform  aims  to 
upgrade  quality  assurance  and  a  new  funding 
system  has  been  implemented.  The  system  aims 
to improve quality, completion and diversification 
of  programmes  and  institutions  (Country  Report 
2018,  European  Commission,  2018c;  European 
Commission/  EACEA/  Eurydice,  2018).  While 
there  is  no  systematic  use  of  graduate  tracking 
surveys, the Czech Republic is one of the countries 
piloting the European graduate survey in 2018 and 
2019,  which  may  yield  data  on  the  quality  of  the 
graduate labour market and social outcomes.   

The  implementation  of  the  2015-2020  strategy 
for  digital  literacy  faces  delays.  Every  second 
information  and 
teacher  of 
school  has  a 
relevant 
technology  without 
communications 
qualifications 
outdated. 
equipment 
Authorities  plan  further  investment  in  digital 
infrastructure and related skills. 

and 

is 

Investment needs 

and 

change 

existing 
Demographic 
socioeconomic  disparities  require 
increased 
investment  in  tailored  active  labour  market 
policies,  affordable  childcare,  and  education 
and  training.  Labour  shortages  and  future  skills 
mismatches  require  investment  in  human  capital 
and  the  adaptation  of  the  labour  force,  through 
targeted  active 
labour  market  policies,  adult 
learning and social enterprises. Investments in the 
teaching profession and in inclusive  education are 
needed  to  tackle  socio-economic  inequalities  in 
school  outcomes.  Using  the  full  labour  potential 
requires  matching  investment  in  childcare,  social, 
health care and long-term care services. 

qualified 
(OECD, 2016), better support could be beneficial. 

to  disadvantaged 

teachers 

schools 

While  being  positive  overall,  the  impact  of  the 
inclusive  education reform  on the  participation 
of  Roma  children  in  mainstream  education 
remains limited. The reform is a major concerted 
effort (see Country Report 2018; Centre for Policy 
Studies,  2018)  but  the  government  reported  that 
10.3 %  of  Roma  elementary  school  age  children 
attend  special  schools  or  special  classes,  8.3  pps 
more than in the case of elementary school pupils 
as  a  whole.  Roma  pupils  represent  29.1 %  of  all 
pupils in a programme with light mental disability. 
Free  individual  support  measures  for  pupils  with 
special  educational  needs,  including  those  from 
disadvantaged  socio-economic  backgrounds,  were 
introduced 
in 
mainstream education. The 2017 evaluation by the 
School  Inspectorate  indicates  that  the  reform  has 
improved  the  support  for  these  pupils,  reaching 
around 98 % of education providers at all levels. In 
addition,  a  survey  of  school  professionals  found 
that  49 %  of  school  principals  believe  they  can 
now  provide  better  support  to  these  children. 
However,  the  recruitment  of  teaching  assistants  is 
a  challenge,  with  21 %  of  schools  failing  to  find 
qualified  candidates.  Some  regional  and  local 
authorities  resist  transforming  former  practical 
schools for political reasons. Investment in skilled 
pedagogical staff, training tools, teaching materials 
or  technological  equipment  is  needed  to  meet  the 
reform objectives.  

to  participate 

to  enable 

them 

Participation  in  early  childhood  education  and 
care  continues  to  catch  up  with  other  Member 
States.  It  is  estimated  that  only  about  34 %  of 
Roma from the age of four participate in this level 
of  education 
(FRA,  2016).  Under  current 
conditions,  it  is  crucial  to  maintain  the  recently 
established  right  of  all  children  over  3  years  to 
attend  pre-school  and,  subsequently,  to  guarantee 
places in  kindergartens. The highest proportion of 
home-school  pupils  was  registered  in  the  Usti 
region,  where,  children  would  benefit  most  from 
inclusive 
being  educated  at  school 
environment.  The  full  support  of  municipalities  is 
important to ensure a growing participation and an 
effective implementation of the law.  

in  an 

The  increase  in  tertiary  education  attainment 
has been among the fastest in the EU in the past 
decade.  This  has  been  the  case  in  particular  for 

31 

 
3.4.   COMPETITIVENESS REFORMS AND INVESTMENT 

3.4.1 Competitiveness and productivity  

Labour  productivity  has  been  growing  fast 
despite a slow down over recent years. Between 
2000  and  2017  gross  value  added  (GVA)  per 
worker increased by around 72 %. However, in the 
last  3  years  the  cumulative  growth  was  as  low  as 
2.5 %.  As  shown  in  Graph  3.4.1,  the  productivity 
gap  between  the  Czech  Republic  and  Germany 
shrank  from  63 %  in  2000  to  30 %  in  2009. 
Nonetheless,  during  the  financial  crisis,  the  trend 
reversed and the gap reached 38 % in 2012 before 
decreasing  again  gradually  to  around  33 %  in 
2017. The gap versus the EU also halved reaching 
24 %  in  2017,  among  the  lowest  levels  in  the 
region together with Slovakia (23 %) and Slovenia 
(27 %). The growth of gross value added per hour 
worked  has  been  mostly  in  line  with  the  EU  and 
euro area averages but more subdued than in some 
neighbouring  countries  since  2008.  While  Poland 
and  Slovakia  had  cumulative  increases  of  13 %, 
the  Czech  Republic only  witnessed a total growth 
of 8.5 % in 2012-2017 (OECD). 

Graph 3.4.1:  GVA per worker and the productivity gap (in 

PPS) 

the  Czech  Republic  is  around  40 %,  a  figure  that 
remained  more  or  less  constant  since  1997.  The 
gap  varies  across  sectors  with  the  manufacturing 
and trade sectors showing a smaller gap. Until the 
financial  crisis,  TFP  growth  was  boosted  by 
foreign direct investment (FDI), the availability of 
a  cheap  but  skilled  labour  force,  and  technology 
imports.  The  lower  levels  of  growth  after  2009, 
however,  may  signal  that  the  pre-crisis  growth 
model  may  be  losing  steam.  As  the  technology 
imports  have  not  been  replaced  with  home-grown 
innovation,  the  country  may  risk  being  caught  in 
the  middle-income  trap  (European  Commission 
and EIB, 2018). The contribution of ICT capital to 
GVA has also been very low. In terms of volumes, 
the  cumulative  increase  between  1996  and  2014 
was  of  around  9 %,  contributing  with  less  than 
0.5 % to  the  annual  GVA  growth.  Between  2008 
and  2014,  the  cumulative  increase  was  as  low  as 
2 %.  Nonetheless,  in  the  automotive  industry  the 
increase was close to 11 % (EU KLEMS). 

Graph 3.4.2:  Breakdown of contributions to GVA growth in 

the manufacturing sector 

Source: AMECO, European Commission 

The growth of Total Factor Productivity (TFP) 
has  been  less  notable,  pointing  to  emerging 
weaknesses  in  the  country’s  growth  model. 
Between  EU  accession  and  the  start  of  the 
financial  crisis,  TFP  saw  an  annual  increase  of 
around  3 %.  However,  after  2008  the  annual 
growth  became  very  volatile.  According  to  the 
IMF  (2018),  the  TFP  gap  between  Germany  and 

Source: EU KLEMS Growth and Productivity Accounts 

The  contribution  of  manufacturing  to  the 
economy remains one of the highest in the  EU. 
Driven by a high stock of FDI, the contribution of 
manufacturing  to  GVA  is  significantly  above  the 
to 
EU  average.  According 
the  IMF  (2018), 
in  employment  has 
although 
its  proportion 
declined,  manufacturing 
highest 
the 
productivity growth among the major sectors since 
1996.  Most  of  this  growth  was  generated  by  the 
contribution  of  non-ICT  capital  and  by  TFP. 

had 

32 

0%10%20%30%40%50%60%70%050100150200200020012002200320042005200620072008200920102011201220132014201520162017Gap2000=100CzechiaGermanyvs Germany (rhs)vs EU-28 (rhs)-18-16-14-12-10-8-6-4-202468101214-18-16-14-12-10-8-6-4-2024681012141996200020042008200920102011201220132014ppsHours workedLabour compositionICT capitalnon-ICT capital TFPGVA growth rate (rhs)% 
 
 
 
Nonetheless, while TFP has been much higher than 
in  other  sectors,  it  has  been  more  sensitive  to  the 
financial crisis, with significant drops witnessed in 
2009 and 2012-2013. Similarly, the contribution of 
ICT capital has been negligible (Graph 3.4.2). 

Productivity  developments  are  strongly  related 
to the openness of the economy and the inflows 
of FDI. While FDI inflows have been significantly 
lower compared to the pre-crisis period, the Czech 
Republic  continues  to  have  one  of  the  highest 
stocks of FDI in the region. Two thirds of the total 
FDI  stock  is  directed  to  services  with  the  rest 
mostly  focusing  on  manufacturing.  Motor  vehicle 
manufacturing  represents  around  8 %  of  the  FDI 
stock  and  a  quarter  of  all  manufacturing 
investment.  Nonetheless,  there  are  large  regional 
differences,  as  more  than  60 %  of  all  FDI  is 
concentrated in Prague and Central Bohemia.  

Graph 3.4.3:  Value-added of foreign-controlled firms as a 

share of total value added in specific 
manufacturing sectors in 2015 

3.4. Competitiveness reforms and investment 

labour  productivity  and  turnover  per  employee. 
The  gap  between  foreign  and  domestic  firms  in 
terms  of  value  added  and  labour  productivity  has 
remained  constant  since  2008,  suggesting  limited 
spillovers  in  terms  of  technology  and  knowledge 
transfer 
(2018  Country  Report;  Pavlinek  & 
Žížalová,  2016;  Mýtna  Kureková,  2018).  While 
there  were  some  indirect  spillovers  (i.e.  increased 
requirements and competition from foreign firms), 
many  domestic  firms  provide  low  value  added 
products and  services in  the  global supply chains. 
This  may  suggest  an  investment  need  to  support 
the 
the  uptake  of 
innovation performance of domestic firms. 

technology  and 

increase 

(see 

Section 

changes 

Addressing  the  investment  needs  in  education, 
infrastructure  and  innovation  can  strengthen 
the  country’s  long-term  growth  potential.  Due 
to  labour  and  demographic  constraints  impacting 
the  manufacturing-intensive  economy, 
further 
investment  in  education  and  upskilling  is  critical 
for  ensuring  that  the  country  is  ready  for  future 
technological 
3.3). 
Furthermore,  subpar  road,  railway  and  broadband 
networks  hinder  the  business  development  in 
peripheral  regions  and  can 
increase  regional 
disparities, despite the advantages in  geographical 
proximity.  Increased  focus  on  the  home-grown 
the 
innovation 
performance  of  domestic  firms  and  upgrade  them 
into  the  global  supply  chains,  while  reducing  the 
dependency 
investment.  The 
foreign 
decarbonisation  of  the  energy  intensive  economy 
and  measures 
negative 
environmental  effects  of  economic  development 
also 
increased  public  and  private 
investment. 

environment 

address 

require 

should 

boost 

the 

on 

to 

(1) The compound annual growth in 2011-2015 between 
brackets 
Source: Eurostat FATS database 

Foreign  investment  is  a  major  contributor  to 
the  economy  but  spillovers  remain  limited. 
Almost  one  third  of  all  employment  is  generated 
by  FDI,  more  than  in  any  other  country  in  the 
region.  Foreign  firms  account  for  around  two 
thirds of  value-added in the  manufacturing sector, 
while 
the 
their  proportion  exceeds  90 % 
automotive  industry  (Graph  3.4.3).  They  have 
around  25 %  higher  costs  per  employee  than  the 
national  average,  but  also  significantly  larger 

in 

In  the  non-financial  sector,  SMEs  remain  a 
backbone  of  the  economy.  However,  while 
accounting  for  two  thirds  of  total  employment  in 
the  sector,  their  productivity  is  below  that  of 
larger,  mostly  foreign  companies  and  half  the  EU 
average  (see  2018  Country  Report).  While  the 
authorities  increased  the  rollout  of  funds  and 
lending  guarantee  programmes,  SMEs  will  need 
further support to enter and remain competitive in 
global  markets.  Access  to  finance  has  improved 
but  entrepreneurship  remains  below 
the  EU 
average (see 2018 SBA Fact Sheet) and may need 
alternative forms of support.  

33 

(+3%)(+6%)(-3%)(+7%)(-3%)(+2%)(+4%)(-1%)(+7%)0%20%40%60%80%100%Manufacturing (average)ChemicalsNon-metallic mineral productsElectrical equipmentsBeveragesPaper and paper productsComputers and electronicsBasic pharmaceuticsMotor vehicles 
 
3.4. Competitiveness reforms and investment 

Graph 3.4.4:  Investment in the total economy 

introduce  demand-side  measures  to  increase  the 
attractiveness of financial instruments  

A  large  administrative  and  regulatory  burden 
may  hurt  further  investment.  According  to  the 
2018  Flash  Eurobarometer  2018,  69 %  of  Czech 
firms  see  administrative  and  regulatory  burden, 
other than costs, as a major obstacle to investment. 
Fast-changing 
complex 
administrative  procedures  remain  major  problems 
for  doing  business.  The  cost  for  enforcing 
contracts,  frequent  changes  to  the  tax  and  labour 
regulations (EIB, 2018) and difficulty in obtaining 
construction permits are all seen as major obstacles 
for  the  economy,  potentially  deterring  possible 
domestic and foreign investors (see Section 3.4.4). 

legislation 

and 

Source: European Commission, AMECO 
Note: Data for 2018-2020 is based on Commission 2018 
Autumn Forecast 

The  level  of  investment  has  been  historically 
high.  With  an  annual  average  of  27.5 %  of  GDP 
between  2000  and  2017,  the  Czech  Republic  had 
one of the highest levels of investment in the EU. 
In  the  medium  term,  the  Commission  Autumn 
2018  Forecast  suggests  this  level  will  drop  to 
around  25 %  of  GDP,  still  above  the  EU  average 
(Graph 3.4.4). At around 5 % of GDP, the level of 
general  government  investment  has  also  been 
above the EU average in 2000-2017, but is forecast 
to drop to around 4 % up to 2020. 

A harmonised rollout of financial instruments is 
vital  for  addressing  all  investment  needs.  As 
interest  rates  for  commercial  loans  are  increasing 
and the Czech Republic is to receive less EU funds 
in  the  future  programming  period,  there  is  room 
for financial instruments to be used more broadly, 
mainly  in  the  form  of  preferential  loans  or  in 
combination  with  available  grants.  The  use  of 
venture capital, business angel funds and revolving 
funds is also rather low. Most investment needs are 
in  areas  such  as  support  to  SMEs,  start-ups  and 
social entrepreneurship, student mobility, housing, 
regeneration  of  brownfields,  energy  efficiency, 
digitalisation,  broadband  networks  and  waste 
management.  In  addition,  the  European  Fund  for 
Strategic  Investments  is  not  fully  used  to  address 
needs  related  to  revenue-generating  and  cost-
saving  activities.  In  this  regard,  there  may  be  a 
to  develop  appropriate  structures  and 
need 

Transport and digital infrastructure  

The transport infrastructure is incomplete. The 
Czech Republic is a significant transit country (23), 
which  puts  great  demands  on 
the  domestic 
infrastructure  and  its  multimodality.  However, 
transport  investment  as  a  percentage  of  GDP 
dropped by 12 % between 2010 and 2015, bringing 
it  below  the  EU  average.  Consequently,  the 
country  ranks  low  in  the  2016  EU  Transport 
scoreboard  (24),  scoring  particularly  low  on  road 
to  coverage, 
infrastructure  with  gaps 
quality, standards, and low carbon aspects, e.g. the 
percentage  of  renewable  energy  in  transport  and 
the  take-up  of  electric  vehicles  (25).  The  current 
number  of  publicly  available  recharging  points 
covers  the  needs  of  the  existing  vehicle  fleet  but 
the planned growth of the recharging infrastructure 
may not be sufficient to cater for the needs of the 
expected take-up in the vehicle market. The use of 
certain  new  forms  of  public-private  partnership 
financing  of  transport  infrastructure  and  well-
developed  governance  structures,  could  address 
some of these gaps. 

linked 

completion  of 

The 
the  Trans-European 
Transport  (TEN-T)  core  network  is  far  from 
being  finalised.  Partly  due  to  a  lack  of  proper 
strategic  planning,  essential  parts  of  the  TEN-T 
infrastructure  have  not  yet  been  built  or 

(23)  20 % of the intensity on the highway network is for transit. 
(24)  https://ec.europa.eu/transport/facts-fundings/scoreboard_en  
(25)  The  Czech  Republic  has  one  of  the  lowest  percentages  of 
electric  vehicles  in  new  registered  passenger  cars.  The 
proportion  of  renewable  energy  in  transport  is  also 
declining below the EU average. 

34 

0.05.010.015.020.025.030.035.0CZEUCZEUCZEUCZEUAverage2000-2017Average2000-2009Average2010-2017Forecast2018-2020%general government investmentall other investment 
 
                                                           
3.4. Competitiveness reforms and investment 

to 

Digital  infrastructure  is  improving  but  the 
division between urban and rural areas persists. 
Nearly  all  the  households  have  access  to  basic 
fixed  and  4G  broadband  coverage.  While  the 
number  of  households  with  access 
fast 
broadband increased from 75 % in 2016 to 89 % in 
2017,  only  59 %  of  rural  households  are  covered. 
Upgrading  older  networks  based  on  copper 
infrastructure  along  with  fixed  wireless  access 
solutions  will  not  be  sufficient  for  achieving  the 
2025  connectivity  objectives.  To  address  future 
connectivity  needs,  investment  is  needed  in  very 
high  capacity  networks  (i.e.  optical  fibre)  and 
appropriate demand-side measures. The auction of 
5G  frequencies  is  expected  in  the  second  half  of 
2019. 

Research and innovation 

the  country 

research 
the 

The Czech Republic has not yet created a fully 
innovation  ecosystem  based  on 
functioning 
home-grown 
development. 
and 
latest  European  Innovation 
According 
to 
Scoreboard, 
is  only  a  moderate 
innovator  and  the  differential  towards  the  EU 
average  worsened  since  2010,  notably  in  relation 
to  SMEs’  innovation  and  collaboration  activities 
(European Commission, 2018d). The overall R&D 
intensity  in  2017  stood  at  1.79 %  of  GDP. 
Business  expenditure  on  R&D  increased  from 
0.77 % of GDP in 2010 to 1.13 % of GDP in 2017. 
However, close to two thirds of these expenditures 
are incurred by foreign firms. While some of these 
firms  have  set  up  medium  and  high-tech  research 
and innovation facilities, their activities are mainly 
directed  towards  experimental  development  rather 
than industrial research. Thus, further investments 
are  needed  to  improve  the  innovation  potential  of 
domestic firms, notably SMEs. 

to 

increase 

investment 

Public  R&D 
lacks  a  coherent 
the  modest  research 
strategy 
performance. Its level of intensity stood at 0.66 % 
of  GDP  in  2017  and  if  the  current  trend  is 
maintained, the 2020 target of 1 % of GDP  might 
not  be  reached.  The  increase  in  public  R&D  (26) 
funding  was  partly  linked  to  the  inflow  of  EU 
funds,  suggesting 
increase  may  not  be 
sustainable.  While  a  large  percentage  of  EU 
funding  was  allocated  to  the  building  of  research 
infrastructures,  further  investments  are  needed  to 

this 

(26)  Public R&D intensity stood at 0.55 % of GDP in 2007.  

modernised.  By  2016,  only  55 %  of  the  TEN-T 
road  network  and  63 %  of  the  conventional  rail 
network were completed. Furthermore, the railway 
corridors  are  still  not  fully  equipped  to  meet 
interoperability  and  technical  specification  for 
interoperability  standards.  Uneven  development 
and connectivity affect primarily the south and the 
northeast  parts  of  the  country  (i.e.:  the  unfinished 
D3 and D35 motorways – see Graph 3.4.5). There 
are  also  major  issues  in  terms  of  technical 
compliance with TEN-T regulation for certain core 
network  corridors  crossing 
the  country.  The 
is 
government’s  National 
supposed  to  address  these  pitfalls.  Preliminary 
information  suggests  that  the  authorities  plan  a 
large 
transport 
infrastructure,  particularly  to  improve  the  railway 
and motorway networks.  

Investment  Plan 

allocation 

funding 

of 

to 

Graph 3.4.5:  Motorway network in the Czech Republic 

Source: www.ceskedalnice.cz 

integrated  commuting 

An  efficient  suburban  transport  infrastructure 
can  increase  labour  mobility  and  affordability 
of  housing.  While  the  process  of  suburbanisation 
has  been  developing  in  metropolitan  areas,  the 
suburban  transport  networks  are  lagging  behind, 
particularly  as  regards  the  rail  infrastructure.  An 
efficient  and 
system 
(including  park  &  ride  and  car  sharing  systems) 
could  potentially  increase  affordability  of  housing 
(see  section  3.2),  positive  education  outcomes, 
in 
health 
large 
the 
ensuring  better 
agglomerations,  while 
mobility  for  the  labour  force.  Measures  could  be 
undertaken  in  coordination  with  sustainable  urban 
mobility  planning  (including  low  emission  zones 
in  the  cities).  This  could  improve  the  health  and 
safety of people affected by the breaches of the air 
quality  standards,  resulting  partly  from  ageing 
commercial vehicles. 

services 
also 

social 

and 

35 

 
 
                                                           
3.4. Competitiveness reforms and investment 

cooperation  (28),  this  tends  to  occur  mostly  on  an 
ad-hoc  basis.  Even  in  scientific  and  technological 
fields  where  the  country  is  relatively  specialised, 
academia-firms  cooperation  is  not  yet  systematic, 
as  shown  by  the  share  of  public-private  co-
publications  (29).  In  the  absence  of  regulatory  or 
funding  incentives,  higher  education  institutions 
and  research  organisations  do  not  systematically 
integrate industry needs in their activities.  

The  financing  of  innovation  is  still  under 
development.  The  National  Innovation  Fund, 
which  was  aimed  at  providing  venture  capital  for 
start-ups  and  spin-offs,  was  cancelled.  Instead, 
support  to  start-ups  will  be  provided  via  equity 
investments  through  a  fund  of  funds  managed  by 
the  European  Investment  Fund.  It  remains  to  be 
seen  whether 
type  of  support  will  be 
appropriate for the needs of the Czech startups. On 
the  other  hand,  there  are  currently  no  appropriate 
funding  instruments  supporting  early-stage  and 
proof of concept projects. 

this 

the 

further 

is 
and 

increasing 
between 

The  country  has  not  yet  developed  a  coherent 
policy  framework  for  moving  up  the  value 
the 
scope 
chain.  There 
for 
the 
consistency 
synergies 
competitiveness 
research, 
strategy, 
development  and  innovation  policy  and  the  smart 
specialisation 
institutional 
strategy.  Recent 
changes  have  led  to  research  and  innovation 
responsibilities  being 
split  between 
different governmental bodies, with limited overall 
coordination.  The  identification  of  appropriate 
‘qualifying  criteria’  for  research  and  innovation 
activities  will  be  crucial  for  attracting  higher 
value-added 
the 
forthcoming  ‘Investment  Incentives’  package  (30). 
The recently proposed amendment to the R&D tax 
incentive  does  not  fully  address  the  issue  of 
uncertainty (e.g. assessment of projects will still be 
performed  by  tax  authorities  instead  of  qualified 
research  and  innovation  experts).  There  is  an 
investment need to provide soft measures for firms 
(e.g.  business  support  services,  innovation  hubs) 
and  ensure  a  systematic  evaluation  of  these 
instruments’ effectiveness. 

investment  under 

foreign 

leverage 

economic 
funding 

their 
institutional 

spillovers. 
better 
Furthermore, 
for  R&D 
activities allocated to higher education institutions 
and  research  institutes  remains  low  and  unrelated 
to their performance, so far with limited impact of 
the new evaluation methodology.  

increasing  since  2000, 

The  performance  of  the  public  science  base 
remains  modest.  Although  its  share  of  the  top 
10 % most cited publications and international co-
publications  kept 
the 
country  underperforms  given  its  level  of  public 
R&D investment (Graph 3.4.6). Even in  scientific 
areas  where  the  country  has  historically  been 
specialised (27) the performance is subpar. Besides 
the  shortage  of  skilled  human  resources 
in 
scientific  and  technical  fields,  graduates  are  not 
systematically  provided  with  the  most  relevant 
(e.g. soft skills) or up-to-date scientific knowledge. 
Consequently,  further  investments  are  needed  to 
produce and train graduates in key fields. 

Graph 3.4.6:  Highly-cited publications vs public R&D 
intensity as a share of GDP 

(1) Highly-cited publications are the 10% most cited scientific 
publications of the country. 
(2) Factional counting method. Citation window: 
publication year plus 2 years. 
Source: Eurostat, CWTS based on Web of Science database 

Despite  some  encouraging  initiatives,  the  low 
cooperation between the private  sector and the 
academia 
diffusion. 
Although there are examples of academia-business 

technology 

hampers 

(27)  ‘Chemistry,  physics  and  astronomy’,  ‘medical  sciences’, 

‘life sciences’ 

(28)  Skoda Auto-funded PhD programmes, Honeywell-Masaryk 

University cooperation in South Moravia 

(29)  The share of public-private co-publications in ‘engineering 
sciences’,  ‘medical  sciences’  and  ‘life  sciences’  in  2016-
2017 is lower than the EU average in those same fields. 
(30)  Through an amendment of the Investment Incentives Act. 

36 

EUBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK468101214160.20.30.40.50.60.70.80.91.01.11.2Highly-cited publications, 2015  Public R&D intensity, 2015 
 
                                                           
                                                           
3.4. Competitiveness reforms and investment 

future  investments  as  well  as  a  negative  public 
perception. The abolishment of support schemes in 
2014  and  a  retroactive  tax  on  solar  energy  have 
resulted  in  a  static  market.  Furthermore,  many 
authorities  are  involved  in  licensing  processes, 
which  increase  administrative  and,  ultimately, 
investment  costs.  The 
implementation  of  the 
revised  Renewables  Directive,  establishing  best 
practices  for  the  planned  auctioning  scheme  and 
encouraging  the  uptake  of  small-scale  renewable 
installations  by  self-consumers  and  communities 
will  further  stimulate  more  investment  in  the 
sector.  In  its  final  National  Energy  and  Climate 
Plan, to be adopted by 31 December 2019, in line 
with  the  Regulation  on  the  Governance  of  the 
Energy  Union  and  Climate  Action  (31),  the  Czech 
its 
Republic  will  provide  an  overview  of 
investment  needs  until  2030  for  the  different 
dimensions  of 
including 
renewable  energy,  energy  efficiency,  security  of 
supply, and climate mitigation and adaptation. The 
information  provided,  including  in  the  draft  plan 
submitted  on  31  January  2019,  will  further 
contribute  to  the  identification  and  assessment  of 
energy and climate-related investment needs. 

the  Energy  Union, 

in 

is  not 

Economic  development 
sufficiently 
factoring in environmental protection. There are 
environmental 
implementing 
difficulties 
policies,  as  the  conditions  for  a  circular  economy 
are not fully met. The recycling of municipal waste 
accounted  for  34 %  in  2016,  below  the  45 %  EU 
average, as landfilling remains the main treatment 
option.  Decontamination  and  rehabilitation  of 
industrial  sites,  including  old  and  illegal  landfills, 
are also pending. While the country is on track to 
meet  the  2020  recycling  target,  much  more  effort 
will  be  needed  for  meeting  the  targets  set  for  the 
post-2020 period. 

Air pollution is  particularly problematic and it 
might  become  a  health  hazard.  This  is  further 
aggravated  by  the  widespread  use  of  obsolete 
fossil  fuel  boilers  for  heating.  This  also  relates  to 
the  fact  that  coal,  the  largest  source  of  carbon 
emissions, continues to dominate the power sector, 
posing  a  substantial  threat  to  local  air  quality. 
Furthermore,  the  volumes  of  new  built-up  areas 
and  the  intensity  of  car  traffic  are  increasing, 

(31)  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 

Czech  companies  are  among  Europe’s  top 
performers  in  e-commerce  but  lack  advanced 
digital  technologies.  18.4 %  of  the  total  turnover 
for  small  and  medium-sized  enterprises  (SMEs) 
and  36.7 %  for  large  companies  comes  from 
electronic  sales.  A  growing  proportion  of  SMEs 
also  use  e-commerce  across  borders  at  levels 
above  the  EU average. Nonetheless, only 28 % of 
all  companies  use  enterprise  resource  planning 
software  to  share  information  between  different 
functional  areas  and  only  15.5 %  use  advanced 
cloud  services.  SME’s  ability  to  digitalise  will  be 
crucial for boosting their innovation, productivity, 
competitiveness 
internationalisation. 
Furthermore,  although  the  authorities  are  rolling 
out  an  Industry  4.0  strategy,  there  is  limited 
intelligence,  machine 
in  artificial 
investment 
learning,  big  data  or  blockchain 
technology, 
activities  that  could  upgrade  Czech  firms  in  the 
global value chains.  

and 

Energy, environment and climate change 

Energy  efficiency  is  improving  slowly.  Despite 
funding  being  available,  progress  towards  better 
energy performance of buildings is slower than the 
EU  average,  suggesting  more  systemic  problems. 
There is a lack of clear political leadership, as the 
implementation  of  energy  efficiency  policies  is 
currently  split  among  several  public  authorities. 
Low awareness about the wider benefits of energy 
efficiency  is  coupled  with  a  lack  of  motivation  to 
subsidy 
draw  available  public 
programmes,  due  to  long  payback  times  and  the 
administrative  burden.  Further  investments  are 
needed 
for  energy 
efficiency,  especially 
in  building  renovation, 
including  thermal  retrofitting,  and  the  shift  to 
cleaner  modes  of  transport.  A  harmonised  rollout 
of  relevant  flexible  investment  instruments  could 
leverage  further  private  capital.  Higher  energy 
efficiency  can  reduce  energy  costs  for  both 
households  and  businesses,  potentially  increasing 
the competitiveness of the latter. 

the  potential 

to  exploit 

funds 

from 

for 

framework 

There  is  not  yet  a  fully  complete  legal  and 
institutional 
supporting 
renewable  energy  projects.  Technical  and  legal 
obstacles  to  domestic  energy  generation  from 
renewable  resources  persist  (i.e.:  grid  connection 
and charges). In the area of renewables, retroactive 
changes  have  created  significant  uncertainty  and 
have resulted in higher capital costs for current and 

37 

 
                                                           
3.4. Competitiveness reforms and investment 

3.4.2 Single Market integration 

Access  to  certain  regulated  professions  in  the 
country  continues 
to  be  more  restrictive 
compared  to  the  EU  average.  This  relates 
particularly  to  notaries,  lawyers,  architects  and 
civil  engineers  (34).  These  restrictions  could 
potentially hamper competition, long-term growth, 
innovation and competitiveness.  

The  country 
is  only  partly  exploiting  the 
opportunities offered by the Single Market. The 
number  of  single  market  directives  not  yet 
transposed  is  higher  than  the  EU  average  and  the 
average transposition delay increased significantly 
to  14.4  months  in  2017  (the  EU  average  was  8.7 
months).  

The 
internationalisation  of  the  small  and 
medium-sized  enterprises  remains  low.  SMEs 
lag  behind  the  EU  average  in  terms  of  intra-EU 
imports  and  exports  of  goods,  suggesting  that 
specific trade barriers in the single market of goods 
persist  (see  2018  SBA  Fact  Sheet).  The  free 
movement  of  goods  and  intra-EU  trade  flows  are 
expanding  but  in  specific  sectors  trade  barriers 
continue  to  exist  as  mutual  recognition  of  other 
Member States legislation is not always effective. 

Reduced  efficiency  and  coordination  of  market 
surveillance  may  distort  competition.  The 
responsibility  for  market  surveillance  of  non-food 
goods  is  spread  over  around  a  dozen  authorities. 
for  coordination  and 
This  poses  challenges 
strategic  choices  for  priority  setting,  given  that 
authorities  face  a  persistent  lack  of  financial  and 
material resources to ensure surveillance activities 
are  carried  out  effectively  (35).  Reduced  market 
surveillance  may  trigger  the  emergence  of  non-
compliant  and  unsafe  products 
third-
countries in the Czech market. As companies who 
manufacture  or  distribute  noncompliant  products 
do not incur compliance costs, they may also enjoy 
significant savings and distort competition. 

from 

The  country  is  well  interconnected  in  the 
internal  electricity  market.  It  currently  has  an 
interconnection  capacity  of  19.3 %.  However, 
congestion management in Central Europe needs a 

(34)  COM(2016) 820 final and SWD(2016) 436 final 
(35)  For example, the responsibility for the market surveillance of safety 
of toys is divided between two authorities and ministries depending 
on whether the toys are meant for children younger or older than 3 
years. 

exacerbating  air  and  noise  pollution,  especially  in 
Prague. Preliminary data for 2017 shows that 9 out 
of  10  air  quality  zones  exceeded  the  daily  limit 
value for Particle Matter 10, up from only 4 zones 
in  2016  (32).  Investment  targeting  air  and  noise 
pollution,  biodiversity,  green 
in 
urban  areas  and  rehabilitation  of  brownfield  sites 
could  alleviate  part  of  this  issue  and  make  the 
urbanisation  process  more  sustainable.  It  can  also 
reduce the negative impact on health status.  

infrastructure 

Emissions of greenhouse gases from sectors not 
covered  by  the  EU  emissions  trading  system 
have been increasing recently. While the country 
is  still  likely  to  meet  its  2020  target,  recent 
emission  increases  (+11 %  between  2014  and 
2017)  will  make  it  more  challenging  to  meet  the 
much  more  ambitious  and  binding  2030  target. 
Emissions  have  been  raising  especially  in  the 
transport sector (from 7 to 20 metric tone of CO2 
equivalent  between  1990  and  2017)  but  also  in 
areas such as refrigeration and air conditioning. A 
shift  towards  cleaner  systems  of  transport  could 
not only reduce greenhouse gas emissions, but also 
tackle key sources of air and noise pollution.  

and 

remain 

industrial 

Climate  adaptation  and  risk  prevention  lack 
proper  action  as  regards  suitable  prevention, 
preparedness  and  disaster  resilience.  Disaster 
risks  relate  to  floods,  droughts,  urban  sprawl,  soil 
contaminated 
erosion 
sites. 
Challenges 
the  area  of  water 
in 
management,  including  storm  water  management, 
urban  waste  water  treatment,  water  retention  (33) 
and  natural  /  man-made  disaster  resilience.  The 
country  needs  significant  progress  to  achieve  the 
good  status  and  the  objectives  set  down  for  water 
bodies  in  EU  legislation.  The  most  significant 
pressures  on  rivers  and  groundwater  bodies 
originate  from  human  activity  and  respectively 
agricultural  pollution.  The  expected  progress 
resulting from the planed measures is low and even 
though  there  has  been  some  progress,  some 
challenges  like  the  hydromorphological  pressures 
are still not addressed. 

(32)  There  were  exceedances  also  for  Particle  Matter  2.5,  Nitrogen 
dioxide  and  ozone.  The  European  Environment  Agency  (2018) 
estimated  that  more  than  10 100  annual  premature  deaths  can  be 
attributable  to  fine  particulate  matter  concentration,  460  to  ozone 
and 490 to nitrogen dioxide concentrations. 

(33)  The ecological status is less than good in most parts of the country 
and  only  19.2 %  of  surface  water  bodies  have  good  or  high  status 
(European Environment Agency, 2018). 

38 

 
                                                           
                                                           
3.4. Competitiveness reforms and investment 

training 
regions.  Furthermore, 

mix  of  policies  is  needed  for  them  to  become 
European  clusters.  The  entrepreneurial  capacity 
varies substantially, with a significant lag between 
Prague  and  Brno  and  the  rest  of  the  country.  In 
addition, there is a large mismatch between labour 
market needs and the offer provided by secondary 
in  certain 
schools  and  vocational 
is  a 
peripheral 
persistent  digital  divide  between  the  more  urban 
and the more rural Czech regions, which is still not 
sufficiently  addressed.  Certain  local  initiative-
based  and  place-based  strategies  could  address 
these  disparities  and  tap  into  the  unused  potential 
of  certain  regions.  Integrated 
tools  such  as 
integrated territorial investments for urban areas or 
community  led  local  development  plans  for  rural 
areas  have  a  great  potential  to  stimulate  the 
emergence  of  an  integrated  social,  economic, 
cultural and environmental development. 

there 

Metropolitan  areas  face  pressures  on  their 
transport  infrastructure,  high  costs  of  living 
and  lack  of  affordable  housing.  Despite  having 
higher  productivity,  better  education,  improved 
innovation capacity and better connectivity, Prague 
with  its  adjacent  areas  in  Central  Bohemia  and 
Brno suffer from certain negative externalities. Of 
particular 
of 
suburbanisation  which  requires  these  places  to 
upgrade  their  transport  networks  (i.e.:  completion 
of  the  Prague  Ring)  and  find  innovative  solutions 
regarding housing affordability. 

importance 

process 

the 

is 

investment  priorities 

The gap between Prague and Brno and the less 
developed  regions  has  further  increased,  most 
visibly  with  the  Northwest  region.  The  gap  is 
particularly  visible  in  terms  of  social  exclusion, 
quality  of  education,  public  governance,  and 
research and innovation. To prevent it from further 
widening, 
less 
developed  regions  need  to  focus  on  structural 
transformation.  Thus,  apart  from  investing  on 
infrastructure, there is also a need to tackle issues 
related to social exclusion (i.e.: measures to reduce 
personal bankruptcies and the number of people in 
distress),  improve  the  level  of  education,  public 
administration  and  entrepreneurial  skills.  All  of 
these  may  prevent  deep  and  irreversible  societal 
changes,  which  risk  exacerbating  social  tensions 
and widen the gap between the regions. 

the 

in 

With  the  right  mix  of  policies,  the  ‘transition’ 
regions can speed up their convergence process. 

solution  at  regional  level  that  facilitates  cross-
border  electricity  flows,  while  ensuring  system 
security. Measures that can increase the flexibility 
of  energy  demand  are  still  pending  (e.g.:  smart 
meters rollout). 

The  Czech  Republic  continues  to  show  its 
commitment  to  the  Digital  Single  Market.  The 
government has adopted three strategic documents 
that  specify  the  country’s  position  in  negotiations 
and cooperation in digital policies at the European 
level. The government also adhered to various EU 
initiatives  on  artificial  intelligence,  blockchain 
technology and high performance computing.  

3.4.3 Regional dimension 

Over  the  past  decade,  economic  performance 
has been uneven across the Czech regions. Some 
regional convergence is observed as the Moravian 
regions, starting from lower levels, recorded higher 
growth  rates  than  the  more  advanced  Bohemian 
regions  (Graph  3.4.7).  However,  this  convergence 
pattern  did  not  apply  to  the  Severozápad  region, 
terms  of  economic 
in 
which 
performance since 2005. In addition, the Bohemian 
regions  have  grown  at  a  slower  pace  than  some 
neighbouring German and Austrian regions.  

levelled  off 

Graph 3.4.7:  Change in GDP per inhabitant in 2007-2016 

compared to the change of the EU average in 
the Czech and neighbouring NUTS 2 regions 

Source: Eurostat Regional Yearbook 2018 
Note:  Change  of  GDP  per  inhabitant,  by  NUTS  2  regions, 
2007-2016  (pps  difference  for  2016  minus  2007;  based  on 
data in PP) in relation to the EU-28 average, EU-28 = 0) 

Tapping  into  the  unused  potential  in  various 
regions  requires  a  clear  strategy.  Some  regions 
information  and 
specialise 
communications 
specialised 
manufacturing  or  nanotechnology  but  a  tailored 

in  areas  such  as 

technology, 

39 

 
 
3.4. Competitiveness reforms and investment 

Severozápad and Jihovýchod regions together with 
Střední  Čechy  are  moderate  innovators,  with  a 
particular  emphasis  in  the  area  surrounding  Brno. 
Their  productivity  is  quite  high  at  country  level, 
excluding the levels seen in Prague. The core parts 
of these regions are the metropolitan areas and the 
regional centres, which have the potential to drive 
regional productivity and innovation. Nonetheless, 
these regions are faced with bottlenecks regarding 
transport 
infrastructure,  social  services,  waste 
management and air quality, which may delay their 
catch-up  process.  These  ‘transition’  regions  also 
include  economically  weak  districts  such  as 
Znojmo, Hodonin or Tachov, which have a higher 
proportion  of  people  at  risk  of  poverty,  social 
exclusion and higher unemployment. These mostly 
peripheral  territories  are  further  away  from  the 
backbone  of  the  country’s  transport  infrastructure 
and regional centres. These areas, where small and 
medium-sized enterprises are the main employers, 
are  affected  by  the  poor  accessibility  of  public 
transport and services, demographic pressures and 
low digitalisation. 

Graph 3.4.8:  Change in GDP per inhabitant vs change in 

R&D intensity in the Czech NUTS 2 regions 

Karlovarský)  with  around  15 %  to  20 %  of  the 
population  at  risk  of  social  exclusion  in  certain 
areas. In addition, the level of R&D expenditure in 
this region is around three times lower than in the 
second-worst  region  in  this  regard  (Graph  3.4.8). 
Regional  cities  like  Ostrava,  Olomouc  or  Liberec 
have  a  significant  potential  to  develop  quality 
innovation  but  may  need  to  improve  their  digital 
infrastructure.     

Some  less  developed  regions  are  undergoing  a 
process  of  economic  restructuring.  Due  to  their 
historical  focus  on  old  industrial  sectors,  three 
regions  (Ústecký,  Karlovarský,  Moravskoslezský) 
are supported by a specific  government resolution 
called  the  Strategic  Framework  for  Economic 
Restructuring  (RESTART).  Although  improving, 
there  are  still  several  districts  with  very  poor 
connectivity,  which  increases  their  remoteness 
(e.g. Bruntal or Jesenik). These regions also have a 
higher proportion of people at risk of poverty and 
social exclusion, negative net migration, low focus 
on  innovation,  reduced  accessibility  to  public 
transport  services  and  environmental  concerns 
(e.g. air quality). There is also larger percentage of 
long-term  unemployed  people  and  a  mismatch  in 
the labour market due to low education outcomes. 
Therefore,  short  and  mid-term 
transformative 
action is vital to develop these areas. 

3.4.4 Governance quality 

at 

and 

coordination 

Public  sector  performance  and  government 
effectiveness  ranks  below  EU  average.  While  a 
relatively  high  performance  can  be  observed  in 
access  to  government  information  and  the  use  of 
regulatory  impact  assessments  in  policymaking,  it 
is  less  pronounced  when  it  comes  to  evidence-
strategic  planning 
informed  decision-making, 
capacity 
central 
government  level  and  between  the  state  and  the 
local  level  of  administration.  The  Czech  Republic 
faces  particular  difficulties  as  regards  digitisation 
of government services and the professionalisation 
the  civil  service  (European  Commission, 
of 
the  2017  European  Quality  of 
2018e). 
Government  Index,  the  Czech  Republic  reported 
one of the largest variations between its regions in 
terms  of  quality  of  governance  in  the  EU  (36). 
Efforts  are  needed  to  increase  the  expertise  at  all 
that 
governance 

including  authorities 

levels, 

the 

In 

(36)  -0.99 in Northwest and 0.01 in Southwest; EU = 0. 

Source: European Commission 

Substantial  support 
is  required  to  reduce 
disparities  in  the  ‘less  developed  regions’.  GDP 
per inhabitant in these regions varies from 63 % of 
the  EU  average  in  Severozápad  to  75 %  in 
Moravskoslezsko.  The  innovation  intensity  of  the 
less  developed  regions  is  significantly  lower  in 
addition to large productivity gaps. Some of them 
(e.g.  Moravskoslezsko)  face  significant  rates  of 
negative  net  migration  and  higher  unemployment 
rates.  The  worst  performing  districts 
are 
concentrated in the Severozápad (i.e. Ústecký and 

40 

CZ01CZ02CZ03CZ04CZ05CZ06CZ07CZ08-202468100123Change of GDP per inhabitant (in PPS) between 2007 and 2016 (EU-28=100)Change in R&D intensity between 2005 and 2015CZ01=PragueCZ02=CentralBohemiaCZ03=SouthwestCZ04=NorthwestCZ05=NortheastCZ06=SoutheastCZ07=Central MoraviaCZ08=Moravian-Silesian Regionppspps 
 
                                                           
3.4. Competitiveness reforms and investment 

changes  to  the  law  governing  public  procurement 
over  recent  years  rightly  shifted  the  focus  to 
implementation  and  enforcement.  Public  buyers 
continue to face difficulties in attracting bids from 
potential suppliers. The proportion of procurement 
procedures  in  which  only  one  bid  is  received 
remains high. Moreover, some of the bids that are 
is  scope  for 
inadequate.  There 
received  are 
optimising  public  procurement  procedures 
to 
improve supplier participation and increasing trust 
in  public  institutions.  In  order  to  professionalise, 
the  public  authorities  have  continued  their  multi-
tiered  programme  of  public  procurement  training. 
Among  the  various  themes,  some  specifically 
target  the  supply  side.  The  authorities  have  also 
started 
professional 
cooperate  with 
organisations and other relevant bodies to develop 
methodological guidance. 

to 

Transparency 
in  public  procurement  has 
improved. This is shown in the decreasing number 
of  negotiated  procedures  without  publication 
(21 %  in  2016,  10 %  in  2017  and  8 %  in  2018). 
Nevertheless, 
in 
awarding  these  contracts  (23 %)  and  the  level  of 
joined  or  centralised  procurement  (3 %)  remained 
rather constant. The average length of procurement 
procedures 
in  2018, 
compared to 114 in 2017. 

the  use  of  quality  criteria 

to  135  days 

increased 

of 

complaints 

The  handling 
regarding 
procurement  procedure  is  getting  better  but 
there  is  room  for  improvement.  There  has  been 
an  increase  in  the  average  speed  of  handling 
complaints by review bodies for both first instance 
and  second 
instance  decisions.  Still,  while 
respecting  the  legal  limits,  review  procedures  are 
subject  to  criticism  due  to  their  duration  and  the 
fees 
to  prevent  unsubstantiated 
complaints. The current methodological support on 
the  application  of  current  legislation  does  not 
always  meet  the  needs  of  stakeholders  causing  a 
lack  of  balance  between  caution  and  strategic 
approach. This  may  limit the  wider application of 
the  most  economically  advantageous 
tender 
criteria and can affect possible complainants. 

introduced 

manage  funds,  central  and 
local  authorities, 
universities  and  research  institutes  implementing 
the  projects, as well as local actors and grass-root 
organisations.  

Recent  proposals  aim  to  reduce  the  complexity 
of  the  planning  procedures.  An  amendment  to 
the  Act  on  Accelerating  the  Construction  of 
Transport,  Water,  Energy 
and  Electronic 
Communication  Infrastructure  entered  into  effect 
in  September  2018.  It  primarily  deals  with  the 
backbone  of the  motorway network,  main railway 
corridors  and  high-speed  railway  lines,  Prague 
airport and other facilities. The amendment aims to 
substantially shorten and improve the effectiveness 
of permit proceedings relating to major structures; 
the  most  important  permit  process  relates  to 
expropriation  framework.  The  effects  of 
the 
amendment remain to be seen in practice. 

The government is preparing a completely new 
construction  act.  The  latest  amendment  of  the 
Construction  Act  in  place  since  2018  has  had  a 
limited  impact.  In  this  context,  the  government 
the  Chamber  of 
signed  an  agreement  with 
Commerce to help it drafting the new act, based on 
practical  experience  of  the  construction  industry. 
The  government  expects  to  adopt  the  new  law  by 
spring  2023  but  it  remains  to  be  clarified  how 
public participation will be maintained.   

Administrative  burden,  measured  as  distance 
from the frontier varies substantially among the 
regions  (37).  Prague  ranks  at  the  top,  but  still 
below  the  EU  average.  In  terms  of  registering 
property, all cities perform above the EU average. 
Ostrava and Ústí nad Labem are also above the EU 
average  in  terms  of  starting  a  business.  The 
number of procedures to complete the four steps of 
the  survey  varies  from  35  in  Brno  to  39  in 
Olomouc or Plzen. However, the time to complete 
them varies from the 358 days of Prague to 519 of 
Ústí nad Labem (World Bank, 2018b). The strong 
correlation between the number of procedures and 
the  completion  time  suggests  an  administrative 
capacity challenge and room for simplification. 

Following  recent  changes,  the  legal  framework 
on procurement appears largely fit-for-purpose, 
yet  issues  over  its  practicality  remain.  The 

(37)  The  distance  to  frontier  score  measures  the  best  performance 
observed  on  each  of  the  indicators  across  all  economies  in  the 
World Bank Doing Business sample since 2005. 

There  has  been  an  increased  focus  on  the 
environmental  and  socio-economic  aspects  of 
public  procurement.  In  2018,  the  government 
adopted  a  resolution  endorsing  more  responsible 
and transparent public procurement procedures.  A 
working  group  of  representatives  from  the  central 

41 

 
                                                           
3.4. Competitiveness reforms and investment 

in 

the  other  hand, 

terms  of  control  of 
improved  constantly 
corruption  between  2014 
and  2017.  The 
Corruption  Perception  Index  of  Transparency 
showed 
International,  on 
fluctuation over the past few years, scoring 59, 57, 
55  and  56  in  2018,  2017,  2016  and  2015 
respectively. Over the recent years, there has been 
no significant increase in the criminal statistics on 
people  convicted  for  corruption-related  offences 
on a yearly basis. In general, there is still scope for 
further  measures  to  prevent  and  address  the 
conflict of interest, fraud and corruption. 

in  2017, 

Progress  made 
in  adopting  anti-corruption 
measures slowed somewhat in 2018. The reforms 
introduced 
including  on  public 
procurement,  are  currently  being  implemented. 
The  adoption  of  new 
legislation  had  to  be 
reinitiated  when  the  new  Chamber  of  Deputies 
resumed  its  legislative  activities  in  2018.  The 
government  adopted  a  provisional  action  plan  on 
corruption  in  January  2018,  focused  mostly  on 
practical  interim  measures,  followed  by  an  anti-
corruption  strategy  for  2018-2022  in  December 
2018.  A  couple  of  other  proposals,  which  were 
discussed  without  success  over  recent  years,  were 
also  adopted  by  the  government  and  sent  to 
Parliament  for  further  discussion.  These  include 
proposals  for  extending  the  role  of  the  Supreme 
Audit Office to the regions and municipalities, and 
on  nominations  to  the  state  owned  companies,  an 
area open to conflicts of interest  where  regulation 
is  essential.  However,  the  proposals  on  protection 
of  whistleblowers  and  on  lobbying  have  not  yet 
been  adopted.  The  anti-corruption  agenda  was 
transferred  from  the  Office  of  the  Government  to 
the  Ministry  of  Justice,  changing  the  coordination 
of activities under this cross-cutting agenda.  

has 

service 

subject 

become 

The  process  of  ensuring  independence  of  the 
civil 
to 
reconsideration.  The  2015  Civil  Service  Act 
partially  achieved  its  initial  aim  to  foster  stability 
and  predictability  in  the  functioning  of  the  civil 
service.  However,  in  March  2018  the  government 
submitted a legislative amendment to substantially 
review  it,  approved  by  the  Parliament  in  January 
2019. The amendment raises some concerns about 
the stability and independence of the civil service, 
for 
as 
dismissing and recruiting civil servants and for the 
introduction  of  a  measure  of  ad  hoc  performance 
appraisals.  

it  provides 

flexibility 

increased 

for 

on 

and 

and  local  government  and  NGOs  issued  its  first 
report 
strategic 
recommendations 
procurement. However, the vast majority of public 
procurement decisions continue to be based on the 
lowest price as the adoption of a strategic approach 
remains  pending.  In  line  with  the  EU  Public 
Procurement  Directives,  all  affected  purchases 
became  subject  to  electronic  procedures.  The 
government  has  obliged  all  central  government 
bodies to use the National Electronic Procurement 
system, but further improvement is needed.  

The  Ministry  of  Health  started  to  coordinate  a 
pilot project on centralised procurement. It aims 
to  combine  the  purchases  of  a  range  of  medical 
devices and medicines for 14 large state hospitals. 
Depending  on  the  results  regarding  better  price, 
quality and savings achieved through economies of 
scale and exchanging expertise, the scheme may be 
expanded,  potentially  improving  the  sustainability 
of the healthcare system.  

While  improving,  the  country  remains  below 
the EU average in terms of e-government. 52 % 
of Czech internet users usually send filled forms to 
public authorities over the internet, below the 64 % 
EU  average.  The  national  e-government  strategy 
aims  to  create  a  pro-digital  environment,  ensure 
user-friendly  services,  introduce  digital-friendly 
legislation  and  improve  the  digital  skills  of  civil 
servants. Even though the country commits to the 
‘once-only’  principle,  the  digital  public  services 
still lack coordination and information sharing.  

Some e-government initiatives are encouraging. 
The  eID  and  the  new  public  administration  portal 
are being tested for more user-centric features. The 
digitisation  of  the  Land  and  Property  register  has 
been successfully finalised and within the national 
e-health  strategy,  the  e-prescription  service  was 
implemented  as  of  1 January  2018.  Another 
initiative underway aims to bundle all information 
on  planning  applications  into  a  single  ‘e-binder’ 
that  will  be 
shared  across  all  authorities 
responsible for planning approval.  

slight 

improvements, 

Despite 
corruption 
remains  a  concern  for  doing  business  and  may 
hinder  economic activity. According to the 2017 
Business  Eurobarometer,  51 %  of  business 
representatives  considered  corruption  to  be  a 
problem  for  their  company  when  doing  business. 
the  country 
the  World  Bank, 
According 

to 

42 

 
3.4. Competitiveness reforms and investment 

Box 3.4.1: Investment challenges and reforms in the Czech Republic 

Macroeconomic perspective 

The level of investment has been high since EU accession due the weight of the manufacturing sector in the 
economy, which requires high levels of investment in equipment. With an annual average of 27.5 % of GDP 
in 2000-2017, the Czech Republic has had one  of the highest levels of investment at EU level.  At 5 % of 
GDP in 2000-2017, the level of public investment has also been high but is forecast to drop to around 4 in 
2018-2020. In general, the volatility of public investment is strongly influenced by the EU funds cycle (see 
Section 3.4). 

Assessment of barriers to investment and ongoing reforms  

Despite  some  progress,  public  sector  performance  and  government  effectiveness  ranks  below  the  EU 
average.  The  reduced  strategic  planning  capacity  and  the  administrative  and  regulatory  burdens  are 
particularly problematic. This is exacerbated by the lack of predictability and the lack of stabile legislation, 
including in the area of taxation. Some reforms were adopted lately but their impact remains to be seen. 

Selected barriers to investment and priority actions underway 

Investment in construction and transport infrastructure is influenced by the lengthy procedures  for issuing 
building and land-use permits. The time needed to comply with these permits and the number of procedures 
is  significantly  above  the  level  seen  in  other  high-income  economies.  Some  progress  has  been  made  in 
streamlining the procedures for land expropriation when a new law amendment entered into effect in 2018. 
The government’s intention is to fully revise the legislation on construction by 2023.  

While  recent  changes  improved  the  framework,  there  are  still  practical  issues  pending  regarding  public 
procurement. While the focus was rightly shifted towards implementation and enforcement, the proportion 
of single-bid tenders remains high. Furthermore, most procedures continue to use price as the only criterion 
for  selection.  On  a  positive  note,  there  has  been  some  progress  in  handling  procedure  complaints  and  an 
increased focus on environmental and socio-economic aspects of public procurement. 

The  national  promotional  bank,  the  Czech-Moravian  Guarantee  and  Development  Bank,  supports 
investments by businesses and local authorities, through a range of loan and guarantee products using both 
own resources and EU financial instruments. In addition, the Czech Agency for Enterprise and Innovation 
provides grants in high priority areas, such as low-carbon technologies, smart grids and energy savings.  

43 

Regulatory/ administrative burdenCSRTaxationPublic administrationAccess to financePublic procurement /PPPsCSRCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning EnergyTransportCSRLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
  
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment  

2018 country-specific recommendations (CSRs)  

Improve 

long-term 

fiscal 
the 
CSR  1: 
the  pension 
sustainability, 
in  particular  of 
system.  Address  weaknesses 
public 
procurement practices, in particular by enabling 
more 
by 
implementing anti-corruption measures.  

quality-based 

competition 

and 

in 

Improve  the  long-term  fiscal  sustainability,  in 
particular of the pension system.  

Address  weaknesses 
in  public  procurement 
practices, in particular by enabling more quality-
based  competition  and  by  implementing  anti-
corruption measures.  

The  Czech  Republic  has  made  Limited 
Progress in addressing CSR 1  

  No  Progress  Recent  measures 

increase 
pension  adequacy  but  are  not  coupled  with 
policies that improve long-term sustainability. 
The  government  made  pension  indexation 
more generous by taking into account one half 
(rather  than  the  previous  one  third)  of  real 
wage growth. It will also top up pensions with 
CZK  1  000  for  all  pensioners  over  85  years 
and increase the flat rate  part of the  pensions 
from 9 % to 10 % of the average wage. These 
measures will likely increase costs further and 
worsen  the  sustainability  indicator  (S2)  by 
around 0.2 to 0.3 pps of GDP in the long term. 
While  the  government  agreement  mentions 
pension  reform  among  its  priorities,  it  is 
unclear  what  reforms  are  envisaged  and  if 
they  can  improve  the  sustainability  of  the 
pension  system.  The  projected  increase  in 
age-related  public  expenditure  on  healthcare 
also  reduces  long-term  fiscal  sustainability. 
Public  expenditure  on  healthcare  is  projected 
to increase by 1.1 pps of GDP by 2070, above 
the  EU  average  increase  of  0.9  pps.  Taking 
into  account  the  impact  of  non-demographic 
drivers, it may increase by 1.9 pps of GDP by 
2070, 0.3 pps above the EU average.  

in 

addressing  weaknesses 

  Some Progress There has been some progress 
in 
public 
procurement  practices.  Nonetheless,  apart 
from  an  improved  and  restructured  public 
procurement  training  system  and  increased 
cooperation  of  contracting  authorities  with 
professional  authorities,  annual  procurement 
indicators  do  not  evidence  so  far  any 
improvement of public procurement practices 
in 
terms  of  quality  based  competition. 
Nevertheless,  the  effort  goes  into  the  right 
direction,  even  if  the  results  may  take  more 
time  to  show.  Anti-corruption  measures  have 
been  planned  but  adoption  by  the  Parliament 

44 

 
 
capacity 

CSR  2:  Reduce  the  administrative  burden  on 
investment,  including  by  speeding  up  permit 
procedures  for  infrastructure  work.  Remove  the 
bottlenecks  hampering  research,  development 
and  innovation,  in  particular  by  increasing  the 
firms. 
innovation 
Strengthen the capacity of the education system 
to  deliver  quality  inclusive  education,  including 
by promoting the teaching profession. Foster the 
employment  of  women,  the  low-skilled  and 
people with disabilities, including by improving 
the  effectiveness  of  active 
labour  market 
policies.  

domestic 

of 

Reduce the administrative burden on investment, 
including  by  speeding  up  permit  procedures  for 
infrastructure work.  

Remove  the  bottlenecks  hampering  research, 
development  and  innovation,  in  particular  by 
increasing  the  innovation  capacity  of  domestic 
firms.  

A. Overview Table 

has been long outstanding.  

The  Czech  Republic  has  made  Some  Progress 
in addressing CSR 2  

the 

  Some Progress An amendment to the current 
legislation  has  the  potential  to  shorten  and 
improve 
permits 
effectiveness 
proceedings 
the  awarding  of 
permits  related  to  strategic  infrastructure. 
Furthermore, a new construction law is being 
prepared  and  is  expected  to  be  finalised  by 
2023.  

involving 

of 

  Limited 

The 

thus 

Progress 

strengthen 

remains  a 

the  potential 

announced 
‘Investment package’, if well designed, could 
attract higher value investments in the country 
for 
and 
innovation.  At  the  same  time,  the  recent 
changes in the R&I policy governance and the 
design  of  Metodika  17+  are  unlikely  to 
significantly improve R&D performance. The 
Czech  Republic 
‘moderate’ 
innovator  with a performance of around 80% 
of 
the  Czech 
economy  gradually  shifting  towards  more 
knowledge-intensive  activities  also  thanks  to 
EU  funding,  the  proportion  of  innovative 
Czech  firms 
the  EU 
average.  Bottlenecks  exist  on  the  supply  side 
as  well,  mainly  related  to  the  generally  low 
attractiveness  of  the  public  research  systems 
when  compared  internationally,  the  shortage 
of skilled researchers and a lack of incentives 
for collaboration with businesses.  

the  EU  average.  Despite 

lagging  behind 

is 

Strengthen the capacity of the education system 
to  deliver  quality  inclusive  education,  including 
by promoting the teaching profession.  

  Some  Progress  A  number  of  measures  to 
improve the system have been taken but their 
implementation. 
impact  will  depend  on 
Regarding 
its 
the 
attractiveness remains low and further efforts 

teaching  profession, 

45 

 
Foster  the  employment  of  women,  the  low-
skilled  and  disabled  people, 
including  by 
improving  the  effectiveness  of  active  labour 
market policies.  

A. Overview Table 

are  needed  to  better  promote  it  and  to  attract 
and retain talented young people.  

facilities  but 

  Some  Progress  Measures  fostering  labour 
market  participation  of  women,  low-skilled 
and  people  with  disabilities  have  somewhat 
improved  but 
there  are  still  challenges 
regarding  the  effectiveness  of  active  labour 
market policies (ALMP). Improvements were 
supported  from  EU  funds  by  increasing  the 
number  of  childcare 
the 
implementation  of  other  policy  measures  is 
delayed. The announced changes in provision 
of 
public 
employment  services,  which  could  further 
help 
integrate  other  underrepresented 
groups  such  as  the  low  skilled  and  people 
with disabilities, have not yet brought tangible 
results. Due  to the ineffective targeting and a 
lack  of  tailored  measures,  the  progress  in 
improving  the  effectiveness  of  ALMPs  was 
limited,  preventing  these  groups  from  fully 
benefitting  from  the  favourable  conditions  of 
the labour market.  

individualised 

services 

by 

to 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 75 %.  

The employment rate has risen steadily over the 
past five years, reaching 80.0 % in Q3-2018. 

R&D  target  set  in  the  NRP:  1  %  of  GDP  for 
public R&D expenditures 

National  greenhouse  gas  (GHG)  emissions 
target:  
Max  +  9  %  in  2020  compared  with  2005  (in 
sectors not included in the EU emissions trading 
scheme)  

46 

In  2017,  R&D  intensity  in  the  Czech  Republic 
was  1.79 %  of  GDP  composed  of  63 %  private 
investment  (1.13 %  of  GDP)  and  37 %  public 
investment (0.66 % of GDP).  

While  public  R&D  expenditure  as  a  share  of 
GDP  strongly  increased  from  2008  to  2015 
(from 0.52 % to 0.87 %), it decreased to 0.66 % 
in  2017.  It  is  not  likely  that  the  1 %  target  will 
be reached by 2020. 

Non-ETS 2020 target: + 9 % 

Emissions  are  expected  to  be  at  2005  level  in 
2020,  according  to  national  projections  taking 
into account existing measures. This means that 
the  Czech  Republic  is  expected  to  overachieve 

 
 
 
A. Overview Table 

its target by 9 pps.  

Non-ETS 2017 intermediate target: + 6 % 

In 2017 emissions were 4 % higher than in 2005 
(based on preliminary data). This means that the 
Czech  Republic  overachieved  its  intermediate 
target by two pps. 

With  a  renewable  energy  share  of  14.8 %  in 
2017, the Czech Republic is on track to meet its 
target for 2020. 

increased 

The  Czech  Republic 
its  primary 
energy consumption to 40.1 Mtoe in 2017. Final 
energy  consumption  increased  to  25.5 Mtoe, 
above the set target. 

Early  school  leaving  was  6.7 %  in  2017,  above 
the national target. No  major change  took place 
since 2016, when the share of early leavers from 
education  and  training  amounted  to  6.6 %. 
While above the national target, the value is well 
below the 10.6 % EU average 

The  tertiary  attainment  rate  rose  to  34.2 %  in 
2017,  exceeding 
target  and 
reflecting a sharp increase in recent years. 

the  national 

The number of people at risk of poverty or social 
exclusion  has  fallen  by  299 000  since  2008, 
reaching 1 267 000 in 2017. 

2020 renewable energy target: 13 %  

Energy  efficiency,  2020  energy  consumption 
targets:  

The  Czech  Republic's  2020  energy  efficiency 
target is 44.3 Mtoe expressed in primary energy 
consumption  (25.3  Mtoe  expressed  in  final 
energy consumption)  

Early school/training leaving target: 5.5 %.  

Tertiary  education  target:  32  %  of  population 
aged 30-34.  

Target for reducing the number of people at risk 
of  poverty  or  social  exclusion,  expressed  as  an 
absolute  number  of  people:  380 000  (base  year 
2008: 1 566 000).  

([1])  The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific 
recommendations (CSRs):  

No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures  to  address  the 
CSR. This category covers a number of typical situations to be interpreted on a case by case basis taking 
into account country-specific conditions. They include the following:  

  no legal, administrative, or budgetary measures have been announced  

 

 

in the national reform programme, 

in any other official communication to the national Parliament/relevant parliamentary committees or 
the European Commission, 

  publicly (e.g. in a press statement or on the government's website); 

47 

 
 
A. Overview Table 

  no non-legislative acts have been presented by the governing or legislative body; 

 

the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or 
setting up a study group to analyse possible measures to be taken (unless the CSR explicitly asks for 
orientations or exploratory actions). However, it has not proposed any clearly-specified measure(s) to 
address the CSR. 

Limited progress: The Member State has:  

  announced certain measures but these address the CSR only to a limited extent; and/or 

  presented legislative acts in the governing or legislative body but these have not been adopted yet and 

substantial further, non-legislative work is needed before the CSR is implemented; 

  presented  non-legislative  acts,  but  has  not  followed  these  up  with  the  implementation  needed  to 

address the CSR. 

Some progress: The Member State has adopted measures  

 

 

that partly address the CSR; and/or  

that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a 
few of the measures have been implemented. For instance, a measure or measures have been adopted 
by the national Parliament or by ministerial decision but no implementing decisions are in place.  

Substantial progress: The Member State has adopted measures that go a long way towards addressing 
the CSR and most of them have been implemented.  

Full  implementation:  The  Member  State  has  implemented  all  measures  needed  to  address  the  CSR 
appropriately.  

48 

 
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

49 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio34.733.232.131.229.628.327.526.726.225.825.725.625.8Changes in the ratio (-1+2+3)-2.1-1.5-1.1-0.9-1.6-1.2-0.9-0.8-0.5-0.3-0.20.00.1of which(1) Primary balance (1.1+1.2+1.3)2.32.11.51.41.10.90.60.40.30.10.0-0.1-0.2(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.91.71.01.00.80.70.60.40.30.10.0-0.1-0.2(1.1.1) Structural primary balance (bef. CoA)1.91.71.01.01.01.01.01.01.01.01.01.01.0(1.1.2) Cost of ageing0.20.30.40.60.70.91.01.11.2(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.10.10.1(1.2) Cyclical component0.40.50.50.40.30.10.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.3-0.8-0.9-0.6-0.5-0.3-0.3-0.3-0.2-0.2-0.1-0.10.0(2.1) Interest expenditure0.70.70.80.80.80.70.70.70.80.80.80.90.9(2.2) Growth effect-1.5-1.0-0.9-0.8-0.6-0.5-0.5-0.5-0.5-0.5-0.5-0.5-0.5(2.3) Inflation effect-0.5-0.5-0.8-0.6-0.6-0.6-0.6-0.5-0.5-0.5-0.5-0.5-0.5(3) Stock-flow adjustments1.51.51.31.20.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.CZ - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 10152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -CZBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario102030405020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -CZp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline10152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -CZBaselineHistorical SPB scenarioSGP scenario10152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -CZBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2029)25.838.627.327.528.9Debt peak year20182029201820182018Percentile rank40.0%65.0%Probability debt higher23.2%Dif. between percentiles23.4MEDIUMLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.2)(S1 = -2.9)S2MEDIUM(S2 = 4.1)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2018. 
(3) Quarterly values are not annualised 
* Measured in basis points. 

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

50 

201320142015201620172018Total assets of the banking sector (% of GDP)1)121.0124.8122.6127.1144.9144.5Share of assets of the five largest banks (% of total assets)62.861.363.364.764.1-Foreign ownership of banking system (% of total assets)2)92.391.393.192.891.792.4Financial soundness indicators:2)              - non-performing loans (% of total loans)---4.02.82.2              - capital adequacy ratio (%)16.617.017.617.718.117.6              - return on equity (%)3)11.411.411.311.913.014.3Bank loans to the private sector (year-on-year % change)1)3.84.57.18.87.46.9Lending for house purchase (year-on-year % change)1)5.75.78.29.29.18.4Loan to deposit ratio2)-78.981.884.394.999.2Central Bank liquidity as % of liabilities1)0.00.00.00.00.00.0Private debt (% of GDP)73.771.568.168.967.4-Gross external debt (% of GDP)2) - public14.413.315.516.516.415.1    - private34.436.932.931.633.130.4Long-term interest rate spread versus Bund (basis points)*54.241.37.933.866.3156.4Credit default swap spreads for sovereign securities (5-year)*55.747.244.938.737.034.7 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI). 
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks. 
(3) Long-term unemployed are people who have been unemployed for at least 12 months. 
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019. 
(5) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation). 
(6) Average of first three quarters of 2018 for the employment rate, unemployment rate and gender employment gap. Data 
for unemployment rate is annual. 
Source: Eurostat 

51 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)5.45.56.26.66.7:Gender employment gap (pps)17.217.516.616.015.815.3Income inequality, measured as quintile share ratio (S80/S20)3.43.53.53.53.4:At-risk-of-poverty or social exclusion rate1 (AROPE)14.614.814.013.312.2:Young people neither in employment nor in education and training (% of population aged 15-24)9.18.17.57.06.3:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)72.573.574.876.778.579.7Unemployment rate2 (15-74 years)7.06.15.14.02.92.2Long-term unemployment rate3 (as % of active population)3.02.72.41.71.00.7Gross disposable income of households in real terms per capita4 (Index 2008=100) 98.2100.9104.9108.2109.9:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)13155134961380914111::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.9-0.10.92.2::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction548.243.642.340.542.4:Children aged less than 3 years in formal childcare2.04.42.94.76.5:Self-reported unmet need for medical care1.01.10.80.70.5:Individuals who have basic or above basic overall digital skills (% of population aged 16-74)::57.054.060.0: 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator 
(1) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included. 
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(4) Average of first three quarters of 2018 for the activity rate, employment growth, employment rate, part-time employment, 
fixed-term employment. Data for youth unemployment rate is annual 
Source: Eurostat, OECD 

52 

Labour market indicators201320142015201620172018 4Activity rate (15-64)72.973.574.075.075.976.4Employment in current job by durationFrom 0 to 11 months9.39.710.010.110.5:From 12 to 23 months7.37.07.58.58.1:From 24 to 59 months17.016.115.115.416.7:60 months or over66.267.167.365.964.5:Employment growth* (% change from previous year)0.30.61.41.61.61.6Employment rate of women(% of female population aged 20-64)63.864.766.468.670.571.9Employment rate of men (% of male population aged 20-64)81.082.283.084.686.387.2Employment rate of older workers* (% of population aged 55-64)51.654.055.558.562.165.0Part-time employment* (% of total employment, aged 15-64)5.85.55.35.76.26.3Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)9.19.710.09.79.68.5Participation in activation labour market policies(per 100 persons wanting to work)10.818.021.822.4::Transition rate from temporary to permanent employment(3-year average)34.733.535.136.539.6:Youth unemployment rate (% active population aged 15-24)18.915.912.610.57.96.7Gender gap in part-time employment (aged 20-64)7.67.07.17.68.58.2Gender pay gap1 (in undadjusted form)22.322.522.521.521.1:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)10.09.68.58.89.8:Underachievement in education2::21.7:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)26.728.230.132.834.2:Variation in performance explained by students' socio-economic status3::18.8::: 
  
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

53 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.06.06.05.85.9:Disability1.41.31.31.21.2:Old age and survivors9.59.39.08.78.6:Family/children1.81.81.71.61.6:Unemployment0.60.70.60.50.5:Housing0.20.30.30.30.3:Social exclusion n.e.c.0.30.30.30.30.3:Total19.819.619.118.418.3:of which: means-tested benefits0.40.50.50.50.5:General government expenditure by function (% of GDP, COFOG)Social protection13.313.513.112.512.3:Health7.77.67.67.67.4:Education5.05.15.14.94.5:Out-of-pocket expenditure on healthcare (% of total health expenditure):13.614.113.715.0:Children at risk of poverty or social exclusion (% of people aged 0-17)*18.816.419.518.517.414.2At-risk-of-poverty  rate1 (% of total population)9.68.69.79.79.79.1In-work at-risk-of-poverty rate (% of persons employed)4.54.03.64.03.83.5Severe material deprivation rate2  (% of total population)6.66.66.75.64.83.7Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan3.33.32.21.72.32.1Tenant, rent at market price10.910.68.98.89.27.0Proportion of people living in low work intensity households4 (% of people aged 0-59)6.86.97.66.86.75.5Poverty thresholds, expressed in national currency at constant prices*1011009856199553102238106735110989Healthy life years (at the age of 65)Females8.98.99.38.68.9:Males8.38.58.58.08.4:Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.50.50.5Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::44.856.361.462.3GINI coefficient before taxes and transfers*46.346.046.946.246.144.7GINI coefficient after taxes and transfers*24.924.625.125.025.124.5 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) Value added in constant prices divided by the number of persons employed. 
(2) Compensation of employees in current prices divided by value added in constant prices. 
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.  
(4) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know. 
(5) Percentage population aged 15-64 having completed tertiary education. 
(6) Percentage population aged 20-24 having attained at least upper secondary education. 
(7) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here:  
http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm 
(8) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

54 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry-3.67-4.323.690.89-0.437.71Labour productivity growth in construction-1.873.736.844.40-2.04-2.78Labour productivity growth in market services-0.571.152.425.421.981.86Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry5.875.39-0.641.944.48-0.74ULC growth in construction0.06-8.31-4.32-0.265.626.96ULC growth in market services2.60-1.320.11-1.742.574.81Business environment201220132014201520162017Time needed to enforce contracts3 (days)678678678678678678Time needed to start a business3 (days)30.530.530.530.524.524.5Outcome of applications by SMEs for bank loans4:0.730.330.430.190.13Research and innovation201220132014201520162017R&D intensity1.791.912.001.931.681.79General government expenditure on education as % of GDP5.005.105.104.904.50:Employed people with tertiary education and/or people employed in science and technology as % of total employment363738373839Population having completed tertiary education5171819202121Young people with upper secondary education6919191909089Trade balance of high technology products as % of GDP0.650.400.26-0.91-0.03-1.04Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1.881.501.39OECD PMR7, retail1.031.231.56OECD PMR7, professional services2.772.482.36OECD PMR7, network industries82.962.452.01 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

(1) All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
           Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
(2) Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP   
(3) Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the 
HICP 
(4) Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
(5) Real unit energy cost: real energy costs as % of total value added for the economy 
(6) Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR)  
(7) Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors 
(8) Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
(9) Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; 
figures excl. VAT. 
(10) Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
(11) Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
(12) Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions 
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
(13) Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR) 
(14) Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport industry 
(15) Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
(16) Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and 
hence lower risk. 
(17) Diversification of the energy mix: Herfindahl-Hirschman index of the main energy products in the gross inland 
consumption of energy 
* European Commission and European Environment Agency 

Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

55 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.270.280.260.250.240.2Carbon intensity kg / €0.840.820.780.750.74-Resource intensity (reciprocal of resource productivity)kg / €1.000.990.990.980.940.88Waste intensity kg / €0.15-0.14-0.15-Energy balance of trade % GDP-4.7-4.8-4.0-2.4-2.1-2.6Weighting of energy in HICP%14.214.114.414.413.713.1Difference between energy price change and inflation %5.0-0.1-5.70.8-1.1-3.1Real unit of energy cost% of value added22.021.319.819.920.1-Ratio of environmental taxes to labour taxesratio0.130.120.120.120.12-Environmental taxes% GDP2.22.12.12.12.12.1Sectoral Industry energy intensity kgoe / € 0.130.130.120.120.110.11Real unit energy cost for manufacturing industry excl. refining% of value added18.117.716.116.016.0-Share of energy-intensive industries in the economy% GDP13.112.512.912.712.312.4Electricity prices for medium-sized industrial users€ / kWh0.100.100.080.080.070.07Gas prices for medium-sized industrial users€ / kWh0.030.030.030.030.030.02Public R&D for energy % GDP0.020.020.030.030.030.03Public R&D for environmental protection% GDP0.010.010.010.010.010.02Municipal waste recycling rate%23.224.225.429.733.634.1Share of GHG emissions covered by ETS*%53.651.853.054.151.8-Transport energy intensitykgoe / €0.770.770.830.840.850.83Transport carbon intensitykg / €2.092.102.262.302.34-Security of energy supplyEnergy import dependency%25.327.430.131.932.637.4Aggregated supplier concentration indexHHI29.033.627.219.932.6-Diversification of energy mixHHI0.270.260.260.260.260.25 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR THE CZECH REPUBLIC 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027  of  2  May  2018  (COM(2018)  321),  this  Annex  D  presents  the    preliminary  Commission 
services views on priority investment areas and framework conditions for effective delivery for the 2021-
2027  Cohesion  Policy (38).  These  priority  investment  areas  are  derived  from  the  broader  context  of 
investment  bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.    This  Annex 
provides the basis for a dialogue between the Czech Republic and the Commission services in view of the 
programming of the cohesion policy funds (European Regional Development Fund, Cohesion Fund and 
European Social Fund Plus. 

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

The  Czech  Republic  is  lagging  behind  as  regards  the  proportion  of  innovative  companies  which  are 
crucial drivers of competitiveness. High priority investment needs(39) have been identified to strengthen 
research  and  innovation  capacities  and  the  uptake  of  advanced  technologies,  in  particular  to 
strengthen  innovation  performance  and  foster  productivity  growth  by  identifying  smart  specialisation 
areas on the basis of national and regional needs and potential in order to: 

 

increase  attractiveness  and  competitiveness  of  the  research  system  by  improving  management 
practices  and  reducing  red  tape,  funding  based  on  the  quality  of  research,  creating  incentives  for 
attracting qualified researchers, and upgrading research infrastructures where there is clear evidence 
of commercial interest and proven links to the smart specialisation; 

  support  cooperation  and  knowledge  transfer  between  research/academia  and  businesses  in  priority 

 

sectors; 
increase  the  number  of  innovative  firms  and  start-ups  in  the  smart  specialisation  sectors  with  the 
highest potential also taking into account regional specialisations; 

  promote  investment  in  universities  and  secondary  schools  reflecting  the  smart  specialisation 

priorities. 

Although  the  Czech  Republic  ranks  around  the  EU  average  in  terms  of  the  integration  of  digital 
technology, households’ uptake and companies’ use of data-driven technologies remain limited. Priority 
investment needs have been identified to reap the benefits of digitisation for citizens, companies and 
governments, and in particular to: 

  upscale  and  accelerate  e-government,  including  the  take-up  of  eHealth  and  Europe-wide 

interoperable services; 

  support  integration  and  uptake  of  digital  technology  in  small  and  medium-sized  enterprises, 

including infrastructures and services. 

Small and medium-sized enterprises lag behind in investment into research, development and innovation 
activities  and  the  upgrade  of  their  position  in  the  global  value  chains.  High  priority  investment  needs 
have  been  identified  to  improve  the  competitiveness  of  small  and  medium-sized  enterprises  and 
support technology diffusion and uptake, in particular to:  

  support  companies  to  move  up  in  global  value  chains,  increase  productivity  and  facilitate 

participation in industry led and research driven international and macro regional clusters; 

  strengthen  the  research  and  innovation  capacities  of  small  and  medium-sized  enterprises  by 
supporting  development  and  implementation  of  new  business  models  and  adoption  of  new  and 
emerging technologies; 

  provide support for proof of concept, early stage and scale-ups of innovative firms via financial and 

(38)  This Annex is to be considered in conjunction with the EC Proposal for a Regulation of the European Parliament and of the 
Council  on  the  European  Regional  Development  Fund  and  on  the  Cohesion  Fund  COM(2018)  372  and  the  Proposal  for  a 
Regulation of the European Parliament and of the Council on the European Social Fund Plus COM(2018) 382, in particular as 
regards the requirements for thematic concentration and urban earmarking outlined in these proposals. 

(39)  The intensity of needs is classified in three categories in a descending order - high priority needs, priority needs, needs. 

56 

 
 
                                                           
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for the Czech Republic 

soft support measures (e.g. business support services, innovation hubs, etc.); 

  support small and medium-sized enterprises’ internationalisation to grasp new business opportunities 

related to the digital, carbon-neutrality, resource efficiency and circular economy transitions. 

Digitisation  and  automation  may  lead  to  growing  skills  mismatches.  High  priority  investment  needs 
have  been  identified  to  develop  skills  for  smart  specialisation,  industrial  transition  and 
entrepreneurship, in particular to:  

  provide  businesses  and  research  institutions  with  tools  to  adapt  and  develop  skills  for  smart 

specialisation, industrial transition and entrepreneurship; 

  support growth of small and  medium-sized enterprises by specific training and reskilling for smart 
specialisation areas and innovation management, and building administrative capacity (with a special 
attention to digital skills and industrial transition);  
improve the practise-based approach in vocational education and training, higher education system, 
supporting the linkages between schools and companies. 

 

Policy Objective 2: A low carbon and greener Europe  – Clean and fair energy transition, green 
and blue investment, circular economy, climate adaptation and risk prevention 

A  very  high  energy  intensity  and  poor  air  quality  require  high  priority  investment  to  promote  low 
carbon  and  cleaner  energy  production,  higher  energy  efficiency  and  more  renewable  energy 
sources, in particular to: 

  provide  support  for  capacity-building  at  regional  and  local  level  for  managing  the  clean  energy 

 

transition and shift towards resource efficient economy; 
increase  energy  efficiency  and  the  use  of  on-site  renewable  resources  in  public  and  residential 
buildings, and in small and medium-sized enterprises, including in their premises, installations and 
processes; 

  decrease  greenhouse  gas  emissions  and  air  pollution  by  replacing  fossil-fuelled  boilers  with  low 

 

carbon intensive installations accompanied by energy efficiency renovation of buildings; 
increase the share of renewable energy in heating and cooling, and deploy and integrate small-scale 
electricity  generation  facilities  based  on  renewable  energy  into  the  grid,  including  if  appropriate 
storage and conversion facilities. 

Main  disaster  risks  identified  are  floods  and  droughts.  High  priority  investment  needs  have  been 
identified  to  promote  climate  change  adaptation,  risk  prevention  and  disaster  resilience,  and 
improve sustainable water management, in particular to: 

 

  provide for prevention measures, including improvement of hydro-morphological conditions in line 
with river basin management plans and close to nature solutions (e.g. restoration and maintenance of 
rivers, basins, ponds, and wetlands); 
invest  in  river  and  water  body  management  and  measures  to  improve  the  status  of  water  bodies  – 
gaps still remain in reaching the EU’s objectives in the area of water policy and urban waste water 
treatment; 
invest in storm water management measures in urban areas, and to support water retention/catchment 
measures and measures tackling contamination, water run-off and water quality. 

 

The Czech Republic is performing below the EU average in terms of resource productivity. Landfilling 
is  still  the  treatment  option  most  used  for  municipal  waste.  High  priority  investment  needs  have  been 
identified to improve promote the transition to the circular economy, in particular to: 

  support  measures  leading  to  the  transition  to  the  circular  economy  and  shifting  towards  more 

prevention, reuse, and recycling of waste. 

57 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for the Czech Republic 

The  Czech  Republic  is  experiencing  negative  effects  of  an  increasing  suburbanisation  and 
environmental hot spots. Priority investment needs have been identified to improve biodiversity, green 
infrastructure in the urban environment, and reduce pollution, in particular to: 

  support green infrastructure in the urban environment, 
  decontaminate  and  rehabilitate  industrial  sites  and  contaminated  land,  including  old  and  illegal 

landfill sites. 

Policy  Objective  3:  A  more  connected  Europe  –  Mobility  and  regional  Information  and 
Communications Technology  connectivity 

Investments in infrastructure  have been below the EU average  with  low scores on road infrastructure, 
where  the  existing  investment  gaps  are  linked  to  infrastructure  coverage,  quality  and  standards  (e.g. 
share  of  renewable  energy  in  transport,  the  take-up  of  electric  vehicles  and  electric  vehicle  charging 
points). High priority investment needs have been identified to develop a sustainable, climate resilient, 
intelligent, safe and intermodal Trans-European Transport Network  and in particular to: 

  construct  and  modernize  Trans-European  Transport  Network  core  network  railway  lines,  in 
particular the outstanding/planned sections on four main transit corridors, including interoperability, 
the European Railway Traffic Management  System and upgrade to the Technical Specification  for 
Interoperability standards; 

  construct  missing  parts  of  core  and  comprehensive  road  Trans-European  Transport  Network  and 
remove  regional  disparities  in  road  Trans-European  Transport  Network  accessibility,  especially  in 
the  south  and  north-eastern  part  of  the  Czech  Republic,  in  cooperation  with  the  neighbouring 
countries (for selected sections, the public-private partnership could be used).  

Priority  investment  needs  have  been  identified  to  promote  sustainable  multimodal  urban  mobility 
and  to  develop  sustainable,  intermodal  national,  regional  and  local  forms  of  transport,  and  in 
particular to: 

  promote intelligent, climate resilient, more connected and cleaner systems of transport; 
  promote  sustainable  and  efficient  urban  transport  systems  (as  part  of  the  relevant  integrated 
territorial development  strategies or based on sustainable  urban  mobility plan) in order to enable a 
shift  towards  cleaner  collective  public  transport  and  active  mobility,  including  alternative  fuels 
infrastructure in cities; 
invest into regional and local mobility addressing negative externalities from transport, for instance 
supporting  multimodality  in  the  transport  sector,  making  the  whole  sector  more  environmentally 
friendly, safer, and cost-effective. 

 

There is a significant digital divide (coverage and take-up) between urban and rural. Investment needs 
have been identified to improve digital connectivity, and in particular to: 

  deploy backhaul/backbone broadband infrastructure, and support demand-side  measures promoting 

cabling solutions for owners of private houses in rural areas. 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

Some  population  groups  face  structural  difficulties  in  the  labour  market  and  future  industrial  and 
demographic changes will heavily affect the workforce. Therefore, high priority investment needs have 
been  identified  to  promote  women’s  labour  market  participation,  provide  individualised 
employment services and strengthen workers’ ability to adapt, and in particular to: 

  support flexible working arrangements, increase the number of childcare places for children below 3 

 

years, improve long term care, including through infrastructure development; 
implement a comprehensive skills strategy, promote lifelong learning and skills recognition; support 
workers’  adaptability  to  future  requirements  through  upskilling/reskilling,  including  for  non-EU 

58 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for the Czech Republic 

nationals; 

  modernise labour market institutions and services, including necessary infrastructure; 
  promote healthy and elderly–adapted working environment and new work organisation practices; 
  support  business  incubators,  infrastructure  and  equipment  for  self-employment,  micro-enterprises 

and business/job creation and social innovation, focusing on social enterprises. 

The impact of the socio-economic background on educational outcomes is high and disparities among 
regions  are  growing.  Therefore,  high  priority  investment  needs  have  been  identified  to  promote 
inclusiveness and equal access to quality education and training and to strengthen their relevance 
to the labour market, notably in regions that lag behind, and in particular to: 

 

foster  equal  access  to  and  completion  of  high  quality  inclusive  education  and  training,  including 
through  appropriate  infrastructure  and  targeted  support  to  learners  from  socio-economically 
disadvantaged groups, such as people with disabilities and the Roma; 

  address  educational  disparities  between  schools  and  regions  and  support  the  acquisition  of  key 
competences, including digital skills, support appropriate training for teachers, and provide training 
to teach heterogeneous groups of pupils;   

  support  capacity  to  respond  to  the  labour  market  needs  in  particular  in  vocational  education  and 

training, adult education and higher education, and promote excellence in tertiary education. 

Social  challenges  at  regional  level  are  increasing.  Priority  investment  needs  have  been  identified  to 
promote  the  socio-economic  integration  of  the  most  deprived,  and  to  improve  access  to  social, 
healthcare  and  long-term  care  services  with  a  view  to  reducing  health  inequalities,  including  by 
developing infrastructure, and in particular to: 

 

further  promote  a  coordinated  approach  to  the  socioeconomic  integration  of  the  socially  excluded, 
such  as  the  Roma,  including  through  food  and  basic  material  assistance,  access  to  employment, 
health and social services, financial counselling, targeted education/training, and measures to tackle 
housing exclusion; 

  support de-institutionalisation of care particularly for children under  3, people with disabilities, the 
elderly  and  people  with  mental  disabilities;  cooperation  between  health  and  social  services; 
strengthen and improve access to primary care particularly for vulnerable groups; integration of care 
and prevention.  

Policy  Objective  5  –  A  Europe  closer  to  citizens  by  fostering  the  sustainable  and  integrated 
development of urban, rural and coastal areas and local initiatives 

While some regions recorded convergence, internal disparities have rather further increased. Cohesion 
policy investments need to make full use of the potential of integrated territorial instruments (integrated 
territorial  investment  and  community-led  local  development)  in  order  to  address  the  challenges  to 
territorial  cohesion  and  to  ensure  the  place-based  approach.  Investment  needs  have  been  identified  to 
foster  the  integrated  social,  economic,  cultural  and  environmental  development,  sustainable 
transport and transport connectivity, in particular to: 

 

reduce inequalities between regions and  within  urban areas by developing economic activity poles 
and  creating  the  necessary  linkages  with  the  surrounding  areas  under  the  integrated  territorial 
investments  in  selected  large  cities  and  regional  centres,  including  providing  linkages  with 
surrounding areas; 

  support  transformative  action  with  a  special  focus  on  regions  undergoing  a  process  of  economic 
restructuring currently subject to the Coal Regions in Transition initiative nationally reflected within 
the ‘RE:START’ strategy of the Czech authorities; 

  support innovations in better performing southern regions to avoid middle income trap; 
 

for rural areas, to boost their development and provide capacity building for local authorities, local 
players,  and  grass-root  organisations  (areas  remote  from  backbone  transport  infrastructure  and 
regional  centres  or  rural  areas  in  the  hinterland  of  large  cities,  investments  in  selected  functional 

59 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for the Czech Republic 

areas and based on their integrated territorial development strategies). 

Factors for effective delivery of Cohesion policy 

  strengthened  capacity  of  national,  regional  and  local  authorities  –  via  the  development  and 
implementation  of  a  roadmap  on  administrative  capacity  building  –  to  effectively  manage  and  use 
EU  funds,  and  to  support  policy  making  and  implementation  with  analysis,  evidence  and  broad 
consultation with stakeholders; promote cooperation with social partners and social dialogue;  

  strengthened  capacity  of  beneficiaries,  stakeholders  and  partners  to  prepare  and  implement  high 

 

 

quality projects and to shape policy through public consultation; 
improved public procurement performance, in particular avoiding the use of contracts without prior 
calls for tenders and contracts with a single bidder, and applying green public procurement criteria; 
improved  and  more  efficient  measures  to  prevent  and  address  conflict  of  interest,  fraud  and 
corruption;  

  broader  use  of  financial  instruments,  as  well  as  exploiting  synergies  with  InvestEU,  for  revenue-

generating and cost-saving activities. 

60 

 
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