Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

Scope completed the monitoring review for the Czech Republic (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA- and Stable Outlook; short-term local- and foreign-currency issuer ratings: S-1+ and Stable Outlook) on 2 April 2025.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Czech Republic's AA- credit ratings consider: i) a strong track record of sound macro-economic policy making that enhances economic stability; ii) a competitive industrial base, including a well-developed manufacturing sector, supported by the significant inflows of EU financing and foreign direct investment, contributing to economic resilience; and iii) a comparatively-stable fiscal position, characterised by moderate budget deficits and levels of government debt.

The challenges for the credit ratings include: i) the pressures on public finances, including from adverse demographics, military expenditure and higher interest costs; and ii) an economic structure reliant on global supply chains and external demand, exposing the nation to external shocks. This furthermore considers periods of exchange-rate volatility and the moderate levels of official reserves.

After the moderate growth of 1% in 2024 due to soft external demand and cutbacks from budgetary consolidation, Scope expects growth to improve to 2.4% this year and 2.5% in 2026. This renewed growth will come due to a recovery in household consumption and investment. Long-run trend growth is anticipated around 2.25% a year, stronger than that of the economies of many sovereign peers but nevertheless below pre-pandemic rates. This growth outlook also demonstrates the Czech economy’s resilience, after the gradual phasing out of the import of Russian energy.

Scope foresees the budget deficit remaining comparatively unchanged at 2.3% of GDP this year, after the 3.8% in 2023 and an estimated 2.3% last year. Moderate budget deficits reflect the end of temporary energy price support measures and the January-2024 budgetary consolidation package. The general government debt ratio is currently forecast remaining stable around 43% of GDP over the forecast horizon to 2029. Nevertheless, challenges such as flood-related expenses and a government commitment to increasing military expenditure could complicate the full achievement of budgetary-consolidation targets. In addition, there are post-electoral uncertainties for the path of debt.

Parliamentary elections are to be held by the autumn this year, with the Action of Dissatisfied Citizens (ANO) of ex-prime minister Andrej Babiš leading under opinion polling.

The Stable Outlook represents the view that risks for the ratings remain balanced.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. the fiscal and/or economic outlook weakens resulting in elevated budget deficits and increasing government debt;
    
2. institutional risks increase; and/or
    
3. the economy’s resilience against external shocks were weakened.

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. fiscal performance were to improve materially, resulting in a material decline in government debt-to-GDP;
    
2. the country’s resilience against external shocks strengthened materially, supporting macro-economic sustainability; and/or
    
3. the economy continues its convergence on EU income averages.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Senior Director

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