Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the Czech Republic and delivering a Council opinion on the 2019 Convergence Programme of the Czech Republic
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Czechia, economic policy, economic reform, education, female work, health care system, investment, pension scheme, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 503 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the Czech Republic and delivering a Council opinion on the 2019 Convergence Programme of the Czech Republic     
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of the Czech Republic and delivering a 
Council opinion on the 2019 Convergence Programme of the Czech Republic  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

On 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  21  March 
2019.  On  21  November  2018,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, in which it did not identify the 
Czech Republic as one of the Member States for which an in-depth review would be 
carried out.  
The 2019 country report for the Czech Republic2 was published on 27 February 2019. 
It  assessed  the  Czech  Republic’s  progress  in  addressing  the  country-specific 
recommendations adopted by the Council on 13 July 2018, the follow-up given to the 
recommendations  adopted  in  previous  years  and  the  Czech  Republic's  progress 
towards its national Europe 2020 targets.  

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OJ L 209, 2.8.1997, p. 1. 
SWD(2019) 1002 final. 

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On  30  April  2019,  the  Czech  Republic  submitted  its  2019  National  Reform 
Programme  and  its  2019  Convergence  Programme.  In  order  to  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council3,  where  it  is  necessary  to  support  the 
implementation of relevant Council recommendations, the Commission may request a 
Member  State  to  review  and  propose  amendments  to  its  Partnership  Agreement  and 
relevant programmes. The Commission has provided further details on how it would 
make use of that provision in guidelines on the application of the measures linking the 
effectiveness of the ESI Funds to sound economic governance.4 

The  Czech  Republic  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth 
Pact.  In  its  2019  Convergence  Programme,  the  government  expects  to  move  from  a 
budgetary  surplus  of  0.3%  of  GDP  in  2019  to  a  deficit  of  0.2%  in  2020,  which  is 
projected  to  gradually  deteriorate  to  0.5%  by  2022.  Based  on  the  recalculated 
structural  balance5,  the  medium-term  budgetary  objective  –  which  has  been  changed 
from a structural deficit of 1% in 2019 to 0.75% of GDP as of 2020 – continues to be 
overachieved throughout the programme period. According to the 2019 Convergence 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  gradually 
decline to 29.7% in 2022. The macroeconomic scenario underpinning those budgetary 
projections  is  plausible.  Risks  to  the  achievement  of  budgetary  targets  seem  broadly 
balanced,  with  expected  further  growth  in  public  wages  and  social  transfers 
contrasting with a small reduction in total revenues as a share of GDP. Based on the 
Commission  2019  spring  forecast,  the  structural  balance  is  forecast  to  deteriorate  to 
around  -0.1%  of  GDP  in  2019  and  -0.4%  of  GDP  in  2020,  remaining  above  the 
medium-term  budgetary  objective.  Overall,  the  Council  is  of  the  opinion  that  the 
Czech Republic is projected to comply with the provisions of the Stability and Growth 
Pact in 2019 and 2020. 

The Czech Republic faces medium risks for fiscal sustainability of public finances in 
the  long  term,  mainly  due  to  the  costs  of  ageing.  Pension  expenditure  is  the  main 
factor negatively affecting long-term sustainability, as it is expected to grow by around 
2 percentage  points  of  GDP  by  2070.  Long-term  risks  stem  from  unfavourable 
demographics combined with the capping of the statutory retirement age at 65 years. 
As  a  result,  the  old-age  dependency  ratio,  comparing  elderly  people  with  the  active 
population  almost  doubles,  reaching  approximately  50%  in  2070.  Recent  measures 
improve the adequacy of pensions. Alongside a more generous indexation of pension 
benefits, the government increased the basic pension amount and topped up pensions 
for older pensioners. However, these steps are not accompanied by policies that would 
improve  sustainability.  For  example,  the  alignment  between  gains  in  life  expectancy 
and  the  statutory  retirement  age  is  not  automatic.  Currently,  any  change  to  the 

Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund,  the  Cohesion  Fund,  the  European  Agricultural  Fund  for  Rural  Development  and  the  European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

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retirement  age  (statutory  and  early  retirement)  needs  to  be  proposed  by  the 
government  and  approved  by  the  Parliament.  Such  measures  can  also  be  combined 
with labour market policies that support longer working careers and the participation 
of underrepresented  groups. The projected increase in  age-related public expenditure 
on healthcare amounts to 1.1 percentage points of GDP by 2070, which also reduces 
long-term  fiscal  sustainability.  In  this  context,  further  consolidation  of  the  hospital 
sector and investment in primary and integrated health and social care could improve 
the cost-effectiveness of the healthcare system. 

The Czech National Bank can set recommendatory macro-prudential mortgage lending 
limits, but according to the current legislation, it has limited sanctioning powers since 
it lacks the formal authority to enforce them. While in general the Czech banks comply 
with the recommendations, binding legislative limits would likely increase the level of 
compliance among banks, ensuring financial stability and reduced risks for borrowers. 
A  legislative  proposal,  amending  the  Act  on  the  Czech  National  Bank,  is  still  under 
discussion. 

Despite  slight  improvements,  corruption  remains  a  concern  for  businesses  and  may 
hinder  economic  activity.  On  the  positive  side,  the  reforms  introduced  in  2017, 
including on public procurement, are currently being implemented and some pending 
measures  were  finally  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  conflict  of  interest  and  where  regulation  is  essential. 
However, the proposals on protection of whistleblowers and on lobbying have not yet 
been adopted. 

The Czech Republic is enjoying strong labour market performance. Employment has 
risen  steadily  over  the  past  seven  years  and  unemployment  has  fallen  considerably. 
Nonetheless,  the  labour  market  potential  of  women  with  young  children,  the  low-
skilled and people with  disabilities remains underutilised. Against the background of 
labour shortages, there is clear scope for increasing their labour market participation. 
The employment gap and the gender pay gap remain high despite recent measures that 
have  made  parental  leave  more  flexible  and  increased  the  number  of  childcare 
facilities. The employment rate among women remains well below that of men. Low 
availability  of  affordable  childcare,  long  parental  leave  entitlements,  low  use  of 
flexible  working  arrangements  and  the  lack  of  long-term  care  facilities  still  have  a 
major impact on labour market participation. In 2017, only 6.5% of children below the 
age  of  three  were  in  formal  childcare  (compared  to  the  EU  average  of  34.2%). 
Although  the  low-skilled  make  up  a  small  proportion  of  the  population,  their 
employment  rate  is  well  below  that  of  the  medium-  and  high-skilled.  Similarly,  the 
employment  rate  of  people  with  disabilities  remains  low.  Due  to  limited  capacity, 
public  employment  services  currently  fall  short  of  providing  jobseekers  with 
personalised, continuous support. Increasing the outreach and activation capacities of 
public  employment  services,  together  with  effective  and  well-targeted  active  labour 
market policies would help boost the participation of disadvantaged groups. 

(10)  Labour  and  demographic  constraints  in  a  manufacturing-intensive  economy  warrant 
more  investment  in  education  and  training,  including  for  employed  adults,  to  ensure 
the country meets the challenges brought about by structural changes in the economy, 
such  as  future  technological  changes.  Qualitative  skills  mismatches,  including  those 
due  to  future  automation  and  robotisation,  could  arise,  notably  in  the  digital  sector. 
The new jobs will require new competences and significant investment, particularly in 

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higher  vocational  technical  skills  and  digital  skills,  expected  to  be  needed  following 
the automation of current mechanical jobs. Although various initiatives to introduce a 
comprehensive  skills  strategy  have  taken  place  over  recent  years,  these  have  not  yet 
grown into a genuine comprehensive system.  

(11)  Education  outcomes  continue  to  be  strongly  affected  by  the  socioeconomic 
background of students. A reform to make education more inclusive was introduced in 
2016  with  the  support  of  the  European  Social  Fund.  Its  success  will  depend  on  the 
availability of sufficient and sustainable national funding, further teacher and teaching-
assistant  training,  and  an  increase  in  public  awareness  of  the  benefits  of  inclusive 
education. While positive overall, the impact of the inclusive education reform on the 
participation  of  Roma  children  in  mainstream  education  remains  limited.  Low 
investment,  the  limited  attractiveness  of  the  teaching  profession  and  socio-economic 
inequalities  are  holding  back  the  level  of  education  attained.  There  is  a  shortage  of 
teachers  due  to  low  job  prestige,  low  salaries  compared  to  other  professions  despite 
recent  increases,  and  limited  career  development  opportunities.  The  teaching 
profession  remains  relatively  unattractive  for  talented  young  people.  Given  this,  the 
shortages  of  qualified  teachers  combined  with  expected  unfavourable  demographic 
developments  indicate  that  it  could  become  more  challenging  to  recruit  and  retain 
teaching staff in the future.  

(12)  Despite  the  Czech  Republic  being  a  transit  country,  the  completion  of  the  European 
transport networks, including TEN-T corridors, is far from being finalised. Suburban 
transport  infrastructure  also  remains  deficient,  limiting  housing  affordability  and 
people’s ability to commute to work. Weak transport links are also deterring business 
activity,  particularly  in  remote  regions.  While  the  process  of  suburbanisation  is 
ongoing  in  metropolitan  areas,  suburban  transport  networks  are  lagging  behind, 
particularly  for  rail  infrastructure.  The  country  scores  low  in  terms  of  low  carbon 
aspects, particularly the percentage of renewable energy in transport and the take-up of 
electric  vehicles.  Furthermore,  the  planned  growth  of  the  recharging  infrastructure 
may  not  be  sufficient  to  cater  for  future  demand.  More  investment  in  sustainable 
transport  could  also  reduce  air  and  noise  pollution,  alleviating  its  impact  on  public 
health,  especially  in  urban  areas.  Digital  infrastructure  is  improving  but  the  divide 
between urban and rural areas persists, as only 59% of rural households are covered by 
fast  broadband  networks.  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. 

(13)  The energy intensity of the Czech economy remains  one of the highest  in the EU as 
energy  efficiency  is  improving  only  slowly,  in  particular  in  the  buildings  sector. 
Energy  intensity  is  the  highest  in  the  industrial  and  residential  sectors.  Improving 
energy efficiency is an opportunity to increase the Czech Republic’s competitiveness, 
by reducing energy costs for households and businesses, developing cleaner industries 
and  moving  up  the  value  chain.  Coal  dominates  the  power  sector  and  is  the  largest 
source of carbon emissions, posing a substantial threat to local air quality. Greenhouse 
gas emissions from road transport have increased strongly the last 5 years. On climate 
adaptation and risk prevention, proper action is lacking as regards suitable prevention, 
preparedness and disaster resilience.  

(14)  Administrative  and  regulatory  burden  may  be  hampering  investment.  Many  Czech 
firms see the administrative and regulatory burden as a major obstacle to investment. 
Fast-changing  legislation  and  complex  administrative  procedures  remain  major 

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obstacles to  doing business.  The cost  of enforcing  contracts,  frequent  changes to  the 
tax  and  labour  regulations  and  difficulty  in  obtaining  construction  permits  are 
potentially  discouraging  investment  in  the  country.  The  degree  of  administrative 
burden also varies substantially among the regions. Recent proposals aim to reduce the 
complexity  of  planning  procedures,  particularly  for  large  infrastructure  projects. 
Furthermore,  the  government  is  preparing  to  draft  a  new  construction  law  by  2021, 
with  the  involvement  of  social  partners.  Responsibility  for  market  surveillance  of 
products  is  spread  over  various  organisations,  suffers  from  overlaps  and  poses 
challenges for efficient coordination and effective cooperation. 

(15)  Whilst improving in terms of transparency and provided training, public procurement 
practices  still  lag  behind  in  terms  of  competitiveness,  due  to  the  high  proportion  of 
procedures  with  only  received  bid,  use  of  quality  criteria  and  trust  in  public 
institutions. The vast majority of public procurement decisions continue to be based on 
the lowest price as the adoption of a strategic approach is still pending. There has been 
more  emphasis  on  centralised  procurement  and  on  using  shared  expertise  but  their 
rollout is rather slow, despite their proven potential. 

(16)  The  Czech  Republic  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 
performance  may  be  linked  to  public  investment  lacking  a  fully  coherent  strategy  to 
increase  the  modest  research  performance  and  improve  cooperation  between  the 
private  sector  and  academia.  Productivity  gains  are  mostly  driven  by  large  foreign 
companies,  while  domestic  firms  lag  behind  in  terms  of  value  added  generation. 
Moreover, total factor productivity, an indicator of how efficiently capital and labour 
are being used in production, has been growing at a relatively slow pace. An increased 
focus  on  domestic  innovation  could  boost  productivity  across  the  entire  business 
spectrum, including for small and medium-sized enterprises. 

(17)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex D to the country report6. This would allow the Czech Republic to make the best 
use  of  those  funds  in  respect  of  the  identified  sectors,  taking  into  account  regional 
disparities. Strengthening the country’s administrative capacity for the management of 
these funds is an important factor for the success of this investment. 

(18) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the Czech Republic’s economic policy and published it in 
the  2019  country  report.  It  has  also  assessed  the  2019  Convergence  Programme  and 
the 
the  2019  National  Reform  Programme  and 
recommendations addressed to the Czech Republic in previous years. It has taken into 
account not only their relevance for sustainable fiscal and socioeconomic policy in the 
Czech Republic, but  also  their compliance with  Union rules and  guidance, given the 
need to strengthen the Union’s overall economic governance by providing Union-level 
input into future national decisions.  

follow-up  given 

the 

to 

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In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Convergence 
Programme and is of the opinion7 that the Czech Republic is expected to comply with 
the Stability and Growth Pact. 

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SWD(2019) 1002 final. 
Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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HEREBY RECOMMENDS that the Czech Republic take action in 2019 and 2020 to: 

1. 

2. 

3. 

Improve  long-term  fiscal  sustainability  of  the  pension  and  health-care  systems. 
Adopt pending anti-corruption measures.  

Foster  the  employment  of  women  with  young  children,  including  by  improving 
access to affordable childcare, and of disadvantaged groups. Increase the quality and 
inclusiveness of the education and training systems, including by fostering technical 
and digital skills and promoting the teaching profession. 

Focus investment-related economic policy on transport, notably on its sustainability, 
digital  infrastructure,  and  low  carbon  and  energy  transition,  including  energy 
efficiency, taking into account regional disparities. Reduce the administrative burden 
on  investment  and  enable  more  quality-based  competition  in  public  procurement. 
Remove  the  barriers  hampering  the  development  of  a  fully  functioning  innovation 
ecosystem.  

Done at Brussels, 

For the Council 
The President 

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