Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Czechia, economic policy, economic recovery, economic reform, energy policy, fiscal policy, housing policy, renewable energy, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 603 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Czechia and delivering a Council opinion on the 2023 Convergence Programme of Czechia {SWD(2023) 603 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National Reform Programme of Czechia and delivering a Council opinion 
on the 2023 Convergence Programme of Czechia 

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  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) 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) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

1 
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3 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey4,  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 
four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted 
the  2023  Alert  Mechanism  Report,  in  which  it  identified  Czechia  as  one  of  the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. The Commission also adopted a 
recommendation  for  a  Council  recommendation  on  the  economic  policy  of  the  euro 
area, which the Council adopted on 16 May 2023, as well as the proposal for the 2023 
Joint  Employment  Report  analysing 
the  Employment 
the 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 13 March 2023. 

implementation  of 

(3)  While the  EU economies are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and inclusive growth, safeguard macroeconomic stability and increase resilience in the 
medium  term.  It  also  focuses  heavily  on  increasing  the  EU’s  competitiveness  and 
productivity. 

(4) 

On  1  February  2023,  the  Commission  issued  the  Communication  on  A  Green  Deal 
Industrial  Plan  for  the  Net-Zero  Age5  to  boost  the  competitiveness  of  the  EU’s  net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling  of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains. On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20306, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
priorities  aimed  at  actively  ensuring  structural 
improvements,  well  focused 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

(5) 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 country-specific recommendations remain equally relevant also 

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COM(2022) 780 final. 
COM(2023) 62 final.  
COM(2023) 168 final.  

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(6) 

(7) 

for  recovery  and  resilience  plans  revised,  updated  or  amended  in  accordance  with 
Articles 14, 18 and 21 of Regulation (EU) 2021/241.  
The REPowerEU Regulation7 adopted on 27 February 2023 aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination8.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023  stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
price  pressures,  Member  States  should  target  such  measures  much  better  than  in  the 
past  towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the 
fiscal  recommendations would be  quantified and differentiated  and be  formulated on 
the basis of net primary expenditure, as proposed in its Communication on orientations 
for  a  reform  of  the  EU  economic  governance  framework9.  It  recommended  that  all 
Member States should continue to protect nationally financed investments and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transition  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

(8) 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive reform of the EU’s economic governance rules. The central objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 

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Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

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(9) 

inclusive growth in all Member States through reforms and investment. The proposals 
aim at providing Member States with more control over the design of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 
Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

On  1  June  2021,  Czechia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  8 
September 2021, the Council adopted its Decision on the approval of the assessment 
of  the  recovery  and  resilience  plan  for  Czechia10.  The  release  of  instalments  is 
conditional on a decision by the Commission, taken in accordance with Article 24(5) 
of  Regulation  (EU)  2021/241,  that  Czechia  has  satisfactorily  fulfilled  the  relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

(10)  On 13 April 2023, Czechia submitted its 2023 National Reform Programme and, on 28 
April 2023, its 2023 Convergence Programme, in line with Article 8(1) of Regulation 
(EC)  No  1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have 
been  assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241, 
the  2023  National  Reform  Programme  also  reflects  Czechia’s  biannual  reporting  on 
the progress made in achieving its recovery and resilience plan.  

in 

addressing 

(11)  The Commission published the 2023 country report for Czechia11 on 24 May 2023. It 
assessed  Czechia’s  progress 
country-specific 
recommendations adopted by the Council between 2019 and 2022, and took stock of 
Czechia’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Czechia’s progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

relevant 

the 

is  not  experiencing  macroeconomic 

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011  for  Czechia  and published its results  on  24 May  202312.  It concluded 
that  Czechia 
imbalances.  In  particular, 
vulnerabilities relate to price competitiveness and house prices, but seem limited going 
forward  as  household  debt  is  contained  and  inflation  is  expected  to  decelerate 
significantly  faster  than  the  EU  average.  The  economy  was  strongly  affected  by  the 
energy price shock with inflation rising fast. A loose fiscal stance since the pandemic 
has  also  contributed  to  the  acceleration  of  inflation.  While  overall  price  pressures 
remain elevated, cost  competitiveness  is  projected to  partially recover  going forward 
amid falling energy prices, without there being any immediate external sustainability 

10 

11 
12 

Council Implementing Decision of 8 September 2021 on the approval of the assessment of the recovery 
and resilience plan for Czechia (ST 11047/21; ST 11047/21 ADD 1; ST 11047/21 COR 1). 
SWD(2023) 603 final. 
SWD(2023) 628 final. 

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if 

risks 

inflation  persist, 

that  could  pose  some 

challenges. Inflation is expected to decelerate significantly faster than the EU average. 
for  Czechia’s 
However, 
competitiveness.  The  recent  deterioration  of  the  current  account  warrants  close 
monitoring  going  forward.  In  recent  years,  demand  for  housing  increased  strongly, 
spurred  by  low  interest  rates,  high  income  growth  and  loosened  macroprudential 
measures,  and  supply  of  housing  did  not  keep  up.  House  prices  grew  more  strongly 
during  the  pandemic  but  started  to  moderate  in  mid-2022  amid  higher  interest  rates 
and stricter lending conditions. However, risks of a significant house price correction 
appear  to  be  low,  household  debt  is  contained,  and  the  banking  sector  is  sound;  a 
continued limited supply response over the medium-term would nonetheless continue 
to drive prices up. Continued efforts are needed to rein in inflation. Bringing inflation 
down quickly requires a strong deceleration in demand growth, which in turn can be 
achieved by sufficiently tight monetary and fiscal policy. 

(13)  Based on data validated by Eurostat,13 Czechia’s general government deficit decreased 
from 5.1% of GDP in 2021 to 3.6% in 2022, while general government debt rose from 
42.0% of GDP at the end of 2021 to 44.1% at the end of 2022. On 24 May 2023, the 
Commission published a report under Article 126(3) TFEU;14 the report discussed the 
budgetary situation of Czechia, as its general government deficit in 2022 exceeded the 
3% of GDP Treaty reference value. The report concluded that the deficit criterion was 
not fulfilled. In line with the Communication of 8 March 2023,15 the Commission did 
not  propose  to  open  new  excessive  deficit  procedures  in  spring  2023;  in  turn,  the 
Commission  stated  that  it  would  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024, on the basis of the outturn data for 2023. 
Czechia  should  take  account  of  this  in  the  execution  of  its  2023  budget  and  in 
preparing its budget for 2024. 

(14)  The  general  government  balance  has  been  impacted  by  the  fiscal  policy  measures 
adopted to mitigate the economic and social impact of the increase in energy prices. In 
2022, such revenue-decreasing measures included a reduction in the excises for petrol 
and  diesel,  the  cancelation  of  the  road  tax  for  businesses  and  a  reduction  in  the 
renewables surcharge paid by end-users; while such expenditure-increasing measures 
included  a  lump-sum  contribution  to  the  energy  bills  (the  so  called  “savings  tariff”), 
the support for industry affected by high energy prices and a one-time allowance for 
children. The Commission estimates the net budgetary cost of these measures at 0.7% 
of  GDP  in  2022.  The  general  government  balance  has  also  been  impacted  by  the 
budgetary  cost  of  temporary  protection  to  displaced  persons  from  Ukraine,  which  is 
estimated at 0.3% of GDP in 2022. At the same time, the estimated cost of COVID-19 
temporary emergency measures dropped to 0.1% of GDP in 2022, from 2.0% in 2021. 
(15)  On  18  June  2021,  the  Council  recommended  that  in  2022  Czechia16  maintain  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience Facility, and preserve nationally financed investment.  

(16)  According  to  the  Commission  estimates,  the  fiscal  stance17  in  2022  was  broadly 
neutral, at -0.1% of GDP, as recommended by the Council. As recommended by the 

13 
14 
15 
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Eurostat-Euro Indicators, 47/2023, 21.4.2023 
COM(2023) 631 final, 24.5.2023. 
COM(2023) 141 final, 8.3.2023. 
Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Convergence 
Programme of Czechia, OJ C 304/10, 29.7.2021, p. 10.  

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Council,  Czechia  continued  to  support  the  recovery  including  with  investments 
financed by the Recovery and Resilience Facility. Expenditure financed by Recovery 
and Resilience Facility grants and other EU funds amounted to 1.1% of GDP in 2022 
(1.1%  of  GDP  in  2021).  Nationally  financed  investment  provided  a  neutral 
contribution to the fiscal stance.18 At the same time, the growth in nationally financed 
primary current expenditure (net of new revenue measures) provided a contractionary 
contribution of 0.3 percentage points to the fiscal stance. Czechia therefore sufficiently 
kept  under  control  the  growth  in  nationally  financed  current  expenditure.  Czechia 
therefore preserved nationally financed investment, as recommended by the Council. 

(17)  The  macroeconomic  scenario  underpinning 

the 
Convergence  Programme  is  realistic.  The  government  projects  real  GDP  to  grow  by 
0.1% in 2023 and 3.0% in 2024. By comparison, the Commission 2023 spring forecast 
projects a similar real GDP growth of 0.2% in 2023 and 2.6% in 2024. 

the  budgetary  projections 

in 

(18) 

In  its  2023  Convergence  Programme,  the  government  expects  that  the  general 
government deficit ratio will decrease to 3.5% of GDP in 2023. The marginal decrease 
in  2023  mainly  reflects  higher  expenditures  such  as  subsidies  related  to  the  energy 
support measures,  or higher  gross fixed capital  formation, which  are offset  by lower 
growth  in  other  expenditure  items  and  higher  EU  funds  revenues.  According  to  the 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  decrease  from 
44.1% at the end of 2022 to 43.5% at the end of 2023. The Commission 2023 spring 
forecast projects a government deficit of 3.6% of GDP for 2023. This is in line with 
the  deficit  projected  in  the  Convergence  Programme.  The  Commission  2023  spring 
forecast projects a lower general government debt-to-GDP ratio, of 42.9% at the end 
of 2023. The difference is due to a projected higher nominal GDP growth. 

(19)  The  government  balance  in  2023  is  expected  to  continue  to  be  impacted  by  the 
measures adopted to mitigate the economic and social impact of the increase in energy 
prices.  They  consist  of  measures  extended  from  2022  (in  particular:  reduction  in  the 
renewables  surcharge  paid  by  end-users  and  the  cut  in  diesel  excises)  and  new 
measures such as a cap on electricity and gas prices and support in the heating sector. 
The  cost  of  these  measures  is  partly  offset  by  taxes  on  windfall  profits  of  energy 
suppliers,  namely  a  levy  that  electricity  producers  pay  on  revenues  above  a  certain 
price  level  and  a  windfall  profit  tax  for  companies  active  in  production  and  trade  of 
electricity  and  gas,  fossil  mining,  fuels,  petrochemicals.  Taking  these  revenues  into 
account,  the  net  budgetary  cost  of  the  support  measures  is  projected  in  the 
Commission 2023 spring forecast at 1.3% of GDP in 202319. Most measures in 2023 
do  not  appear  targeted  to  the  most  vulnerable  households  or  firms,  and  do  not  fully 
preserve the price signal to reduce energy demand and increase energy efficiency. As a 
result,  the  amount  of  targeted  support  measures,  to  be  taken  into  account  in  the 
assessment  of  compliance  with  the  recommendation  for  2023,  is  estimated  in  the 

17 

18 

19 

relative 

to  medium-term 

The  fiscal  stance  is  measured  as  the  change  in  primary  expenditure  (net  of  discretionary  revenue 
measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure 
financed  by  non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds, 
in 
the Fiscal Statistical Tables.   
Other nationally financed capital expenditure provided an expansionary contribution of 0.4 percentage 
points of GDP, driven among others by payments to the Czech Post for the provision of universal postal 
services for the period 2018–2022   
The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 

growth. For  more 

see  Box 1 

potential 

details 

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Commission 2023 spring forecast at 0.1% of GDP in 2023 (compared to 0.2% of GDP 
in  2022).  The  budgetary  cost  of  temporary  protection  to  displaced  persons  from 
Ukraine is projected to decrease by 0.1 percentage point of GDP compared to 2022. 

(20)  On  12  July  2022,  the  Council  recommended20  that  Czechia  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance21,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people fleeing Ukraine. Czechia should stand ready to adjust current spending to the 
evolving  situation.  Czechia  was  also  recommended  to  expand  public  investment  for 
the  green  and  digital  transitions,  and  for  energy  security  taking  into  account  the 
REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and  Resilience 
Facility and other Union funds. 

(21) 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
contractionary (+1.4% of GDP), in a context of high inflation. This follows a broadly 
neutral  fiscal  stance  in  2022  (-0.1  %  of  GDP).  The  growth  in  nationally  financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2023  is 
projected to provide a contractionary contribution of 1.2% of GDP to the fiscal stance. 
This  includes  the  reduced  cost  of  the  targeted  support  measures  to  households  and 
firms most vulnerable to energy price hikes by 0.1% of GDP. This also includes lower 
costs  to  offer  temporary  protection  to  displaced  persons  from  Ukraine  (by  0.1%  of 
GDP).  In  sum,  the  projected  growth  of  nationally  financed  primary  current 
expenditure  is  in  line  with  the  Council  recommendation.  Expenditure  financed  by 
Recovery and Resilience Facility grants and other EU funds is projected to amount to 
1.6% of GDP in 2023, while nationally financed investment is projected to provide a 
contractionary  contribution  to  the  fiscal  stance  of  0.5  percentage  points22. Therefore, 
Czechia  plans  to  finance  additional  investment  through  the  Recovery  and  Resilience 
Facility  and  other  EU  funds,  and  it  is  not  projected  to  preserve  nationally  financed 
investment. It plans to finance public investment for the green and digital transitions, 
and for energy security such as energy efficiency improvements in public buildings or 
investments  in  railways  or  digital  services  which  are  partly  funded  by  the  Recovery 
and Resilience Facility and other EU funds. 

(22)  According to the Convergence Programme the general government deficit is expected 
to decline to 2.9% of GDP in 2024. The decrease in 2024 mainly reflects the phase-out 
of energy support measures resulting in lower subsidies, and a lower growth in social 
payments  compared  to  the  growth  in  nominal  GDP.  The  programme  expects  the 
general government debt-to-GDP ratio to increase to 44.0% at the end of 2024. Based 
on  policy  measures  known  at  the  cut-off  date  of  the  forecast,  the  Commission  2023 
spring forecast projects a government deficit of 3.0% of GDP in 2024. This is broadly 
in  line  with  the  deficit  projected  in  the  programme.  The  Commission  2023  spring 
forecast projects a lower general government debt-to-GDP ratio, of 43.1% at the end 
of 2024.  

20 

21 

22 

Council  Recommendation  of  12  July  2022  on  the  2022  National  Reform  Programme  of  Czechia  and 
delivering a Council opinion on the 2022 Convergence Programme of Czechia, OJ C 334, 1.9.2022, p. 
19.  
Based  on  the  Commission  spring  2023  forecast,  the  medium-term  (10-year  average)  potential  output 
growth of Czechia, which is used to measure the fiscal stance, is estimated at 13.3% in nominal terms. 
Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.1 
percentage points of GDP. 

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(23)  The Convergence Programme envisages the phasing out of most of the energy support 
measures  in  2024.  The  Commission  currently  assumes  net  cost  of  energy  support 
measures  of  0.0%  of  GDP  in  2024,  compared  to  1.3%  of  GDP  in  2023.  These 
estimates hinge upon the assumption of no renewed energy price increases.  

(24)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark.23 
Taking  into  account  fiscal  sustainability  considerations,24  and  the  need  to  reduce  the 
deficit  to  below  the  3%  of  GDP  reference  value,  an  improvement  in  the  structural 
balance of 0.5% of GDP would be appropriate. To ensure such an improvement, the 
growth  in  net  nationally  financed  primary  expenditure25  in  2024  should  not  exceed 
6.0%, as reflected in this recommendation. This will also contribute to reducing core 
inflation,  which  is  well  above  the  EU  average,  and  which  could  lead  to 
competitiveness losses if persistent. 

At the same time, the remaining energy support measures (currently estimated by the 
Commission  at  1.3%  of  GDP  in  2023)  should  be  phased  out,  contingent  on  energy 
market developments and starting from the least targeted ones, and the related savings 
should be used to reduce the government deficit. Based on Commission estimates, this 
would lead to a growth in net primary expenditure below the recommended maximum 
growth rate for 2024. 

(25)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow at 3.0% in 2024, which is below the 
recommended growth rate.  

(26)  According  to  the  programme,  government  investment  is  expected  to  decrease  from 
4.9% of GDP in 2023 to 4.4% of GDP in 2024. The lower investment reflects lower 
nationally  financed  investment  and  investment  financed  by  the  EU,  others  than  the 
Recovery and Resilience Facility.  

(27)  The  Convergence  Programme  outlines  a  medium-term  fiscal  path  until  2026. 
According to the programme, the general government deficit is expected to gradually 
decline to 2.4% of GDP in 2025 and to 2.2% by 2026. The general government deficit 
is  therefore  planned  to  decrease  below  3%  of  GDP  in  2024  According  to  the 
programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  increase  from 
44.0% at the end of 2024 to 45.0% by the end of 2026. 

(28)  Czechia faces fiscal sustainability risks in the medium and long term. A series of fiscal 
measures with permanent impact taken in the last 3 years, among which a reduction in 
the  personal  income  tax  base  and  several  indexations  of  social  security  expenditure 
above  the  statutory  minimum,  have  led  to  a  deterioration  in  the  structural  balance. 
There is additional pressure on fiscal sustainability in the medium to long term due to 

23 

24 

25 

Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of  more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The  Commission  estimated  that  Czechia  would  need  an  average  annual  increase  in  the  structural 
primary balance as a share of GDP of 0.15 percentage points to ensure that government debt is kept at 
prudent levels in the medium term. This estimate was based on the Commission autumn 2022 forecast. 
The  starting  point  for  this  estimate  was  the  projected  government  deficit  and  debt  for  2024  which 
assumed the withdrawal of energy support measures in 2024.  
Net  primary  expenditure  is  defined  as  nationally  financed  expenditure  net  of  discretionary  revenues 
measures and excluding interest expenditure as well as cyclical unemployment expenditure. 

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(29) 

increases in the cost of ageing. A projected doubling of the old-age dependency ratio26 
and  capping  of  the  retirement  age  after  2030  are  expected  to  lead  to  an  increase  in 
pension expenditure from 8.8% of GDP in 2030 to 11.4% by 2050. In addition, public 
spending on healthcare and long-term care is projected to increase by 0.9 percentage 
points  and  1.7  percentage  points  of  GDP  respectively  by  2070  due  to  the  ageing 
population. Possible measures to address fiscal sustainability in the long term include 
adjusting the retirement age in line with the increase in life expectancy, incentivising 
the  increase  in  participation  rates  of  older  people  and  limiting  early  retirements, 
adjusting  pension  indexation  rates  or  taking  measures  to  increase  the  labour  supply 
and thus ensuring higher revenues for the pension system.  

In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. The implementation 
of  Czechia’s  recovery  and  resilience  plan  is  underway,  however  with  risks  of  some 
delays.  Czechia  submitted  1  payment  request,  corresponding  to  37  milestones  and 
targets  in  the  plan  and  resulting  in  an  overall  disbursement  of  around  EUR  928 
million. Further improvements to administrative capacity and prioritisation of the key 
reforms  and  investments  are  needed  to  ensure  a  timely  implementation  of  the 
plan.   The  plan  is  expected  to  be  revised  in  2023  with  addenda  to  cover  the 
REPowerEU  chapter  and  to  accommodate  the  increase  of  non-repayable  support.  In 
accordance  with  Article  14(6)  of  Regulation  (EU)  2021/241,  on  30  March  2023, 
Czechia  expressed  its  intention  to  request  up  to  EUR  11  billion  of  additional  loan 
support  under  the  Recovery  and  Resilience  Facility.  The  swift  inclusion  of  the  new 
REPowerEU chapter in the recovery and resilience plan will allow additional reforms 
and investments to be financed in support of Czechia’s strategic objectives in the field 
of energy and the green transition. The systematic and effective involvement of local 
and  regional  authorities,  social  partners  and  other  relevant  stakeholders  remains 
important  for  the  successful  implementation  of  the  recovery  and  resilience  plan,  as 
well  as  other  economic  and  employment  policies  going  beyond  the  plan,  to  ensure 
broad ownership of the overall policy agenda.  

(30)  The Commission approved all of Czechia’s cohesion policy programming documents 
in 2022. Proceeding with the swift implementation of the cohesion policy programmes 
in  complementarity  and  synergy  with  the  recovery  and  resilience  plan,  including  the 
REPowerEU  chapter,  is  key  to  achieving  the  green  and  digital  transition,  increasing 
economic and social resilience as well as achieving balanced territorial development in 
Czechia. 

(31)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan,  Czechia  faces  a  number  of  additional  challenges  related  to  housing,  energy 
policy and the green transition.  

(32)  Housing affordability in  Czechia has been among the lowest  in  the  EU in  the past  5 
years  with  large  differences  between  regions.  High  house  price  growth  has  made  it 
difficult for middle-income groups to buy property. This has fed the demand for rental 
property, which in turn has made it less affordable. Moreover, the low social housing 
stock  cannot  meet  the  demand  of  all  low-income  and  vulnerable  households  (it 
accounted  for  0.4%  of  total  housing  stock  in  2020  versus  7-8%  on  average  in  the 

26 

According to the 2021 Ageing Report issued by the Commission. 

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EU27), and existing housing allowances are underutilised, partly due to administrative 
burden, stigma, and a lack of awareness. As a result, the number of families in housing 
need  has  been  growing  in  recent  years,  which  entails  increasing  costs  for  the  public 
budget and healthcare system. The COVID-19 pandemic and influx of people fleeing 
the  war  in  Ukraine  have  further  exacerbated  these  pre-existing  challenges.  Cohesion 
policy  funding  remains  an  important  source  of  piloting  and  funding  investments  in 
social  housing,  thus  contributing  to  social  protection  and  inclusion.  However,  other 
funding  sources  are  necessary  to  significantly  improve  the  situation.  Czechia  lacks 
legislation and a comprehensive framework on social housing, which makes it difficult 
to  coordinate  the  fragmented  housing  policies  and  define  responsibilities  among 
national and regional bodies.  Stable and sustainable financing from  national  sources, 
together with the adoption of incentives for rental or cooperative housing, would help 
to increase the supply of affordable housing and ensure continuity and scale-up to such 
efforts. Effective coordination would be crucial for increasing the housing supply, the 
reconstruction  and  refurbishment  of  existing  housing  units  and  utilisation  of  vacant 
dwellings. 

(33)  Since the start of the Russian invasion of Ukraine, Czechia has responded to its major 
reliance  on  fossil  fuel  imports  from  Russia  by  diversifying  its  supplies  of  gas.  For 
example, Czechia has moved from being wholly dependent on Russian gas supplies to 
mainly  switching  to  diversified  gas  supplies  from  Norway  and  liquefied  natural  gas 
(LNG) imports. However, the country has not seen a reduction in the consumption of 
fossil  fuels,  leaving  it  exposed  to  a  high  risk  of  supply  disruption  and  price  spikes, 
with  major  negative  effects  for  households  and  industry.  Czechia’s  consumption  of 
natural gas has dropped by 17% in the period between August 2022 and March 2023, 
compared with the average gas consumption over the same period in the preceding 5 
years,  beyond  the  15%  reduction  target.  Czechia  could  keep  pursuing  efforts  to 
temporarily reduce gas demand until 31 March 202428. 

(34)  The  deployment  of  renewables  in  Czechia  has  been  mainly  due  to  regulatory 
limitations, permitting procedures and constrained distribution grid capacity. Czechia 
has moved forward in addressing a number of regulatory challenges such as abolishing 
the  need  for  a  licence  to  generate  electricity  and  a  building  permit  for  smaller 
photovoltaics (up to 50 kWp), and making regulatory changes to facilitate installation. 
However, further efforts are needed to empower energy communities and renewables 
self-consumers, introduce a one-stop shop for renewables, and introduce   go-to areas 
to  boost  the  deployment  of  renewables  by  encouraging  grid  expansion,  flexibility  of 
the  power  system  (such  as  demand  response  or  storage),  the  installation  of  small 
systems  and  smart  metering  will  be  key.  The  regulatory  reforms  in  grids  should  be 
matched  by  investments  in  expanding  grid  capacity,  incentivising  flexibility  and 
deploying  renewables.  and  deploying  renewables.  Moreover,  Czechia  has  a  solid 
industrial  potential  for  manufacturing  of  green  technologies  and  it  could  speeed  up 
investments in the development and scale up of climate-friendly and decarbonisation 
solutions in order to reach net-zero emissions by 2050. 

(35)  The  spike  in  energy  prices  resulting  from  the  Russian  war  of  aggression  against 
Ukraine has highlighted the need to improve the energy efficiency of Czech building 
stock and tackle energy poverty. Czechia has responded by launching programmes for 
residential buildings and helping older people and low-income households. However, 

27 
28 

OECD Affordable Housing Database 2020, OECD, Paris. 
Council Regulation (EU) 2022/1369 and Council Regulation (EU) 2023/706 

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more  efforts  are  needed  to  improve  energy  efficiency  by  making  it  more  accessible. 
This is possible by easing administrative access to subsidies for both households and 
industry,  including  through  building  capacity  and  skills  in  public  authorities. 
Information campaigns and country-wide dedicated advisory services are also required 
to  ensure  that  the  population  is  aware  of  the  need  and  benefits  associated  with 
reducing  energy  consumption  and  help  individuals  and  industry  easily  access 
subsidies. Moreover, Czechia has to accelerate the upskilling and reskilling of workers 
who currently lack the skills needed for building renovations. 

(36)  Reducing Czechia’s exposure to fossil fuels can also be achieved by switching to zero-
emission rail and other forms of zero-emission mobility. However, the deployment of 
zero-emission  vehicles  and  forward-looking  high-capacity  charging  and  refuelling 
infrastructure has been lacklustre. On the regulatory side, the revision of the National 
Action Plan for Clean Mobility and associated regulatory changes should be a starting 
point to provide enabling conditions for and remove barriers to the transition to zero-
emission mobility.  

(37)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 
creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High-quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation.  To unlock untapped labour supply,  these  measures 
need  to  be  accessible,  in  particular  for  individuals  and  in  sectors  and  regions  most 
affected by the green transition. In 2022, labour shortages were reported in Czechia for 
seven  occupations  that  require  specific  skills  related  to  the  green  transition  (e.g. 
plumbers, pipe-fitters, electricians and electrical mechanics)29. 

(38) 

In  light  of  the  Commission’s  assessment,  the  Council  has  examined  the  2023 
Convergence Programme and its opinion30 is reflected in recommendation (1) below.  

HEREBY RECOMMENDS that Czechia take action in 2023 and 2024 to:  

1. 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable  and  preserve  incentives  for 
energy savings. 

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 6.0%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal 
strategy  of  gradual  and  sustainable  consolidation,  combined  with  investments  and 

29 

30 

Based on the European Labour Authority 2023 EURES Report on labour shortages and surpluses 2022, 
i.e.  data  submitted  by  the  EURES  National  Coordination  Offices.  Skills  and  knowledge  requirements 
are  based  on  the  European  Skills  Competences  and  Occupations  (ESCO)  taxonomy  on  skills  for  the 
green  transition.  Examples  are  analysed  on  the  basis  of  the  share  of  ESCO  green  skills  in  relevant 
sectors. Data is not comparable across countries and covers a wide variety of sectors. 
Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

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2. 

3. 

4. 

reforms  conducive to higher sustainable growth, to achieve a prudent medium-term 
fiscal position. 

Take  measures  to  ensure  the  long-term  fiscal  sustainability  of  public  finances, 
including the sustainability of the pension system.  

Accelerate  the  implementation  of  its  recovery  and  resilience  plan,  also  by  ensuring 
an adequate administrative capacity, and swiftly finalise the addendum, including the 
REPowerEU  chapter,  with  a  view  to  rapidly  starting  its  implementation.  Proceed 
with  the  speedy  implementation  of  cohesion  policy  programmes,  in  close 
complementarity and synergy with the recovery and resilience plan.  

Strengthen  the  provision  of  social  and  affordable  housing,  including  by  adopting  a 
specific  legislative  framework,  improving  coordination  between  different  public 
bodies,  and  incentivising  the  construction  of  new  housing  units  as  well  as  the 
refurbishment of existing ones. 

Reduce  reliance  on  fossil  fuels.  Increase  the  deployment  of  renewables  with 
additional  investments  in  electricity  grids  and  direct  deployment  of  renewable 
capacity.  Streamline  permitting  procedures  for  renewables  and  make  the  grid  fit  to 
accommodate access to renewables through additional reforms, removing restrictions 
for  small-scale  renewables  and  setting  up  a  one-stop  shop,  boosting  grid  flexibility 
and  creating  conducive  conditions  for  energy  communities.  Increase  the  energy 
efficiency of district heating systems and of the building stock by incentivising deep 
renovations and renewable heat sources, easing administrative access to subsidies for 
both households and industry, and capacity building and skills in public authorities. 
Promote  the  uptake  of  zero-emission  vehicles  and  boost  the  availability  of  high-
capacity  charging  and  refuelling  infrastructure  through  new  reforms  to  create 
enabling  conditions  for  and  remove  existing  barriers  to  the  deployment  of  vehicles 
and  infrastructure.  Step  up  policy  efforts  aimed  at  the  provision  and  acquisition  of 
the skills needed for the green transition.  

Done at Brussels, 

For the Council 
The President 

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