International Monetary Fund staff published a concluding statement on its 2026 Article IV mission to the Czech Republic, finding the economy is expanding robustly but facing mounting structural headwinds and exposure to external shocks. The statement recommends avoiding a significant fiscal stimulus while the economy is at or near potential, keeping monetary policy on hold unless the inflation outlook shifts materially, and closely monitoring rising real-estate related financial stability risks. Domestic-demand-led growth averaged an estimated 2.5 percent in 2025, with headline inflation at 2.1 percent at year-end and core inflation at 2.8 percent alongside nominal wage growth of around 7 percent. GDP growth is projected at a similar pace in 2026 before slowing toward an estimated potential of 1.8 percent, while headline inflation is expected to fall below the Czech National Bank’s (CNB) 2 percent target in the near term. On fiscal policy, the 2026 budget implies a moderate expansion and staff project the general government deficit to widen to 2.3 percent of GDP in 2026 from an estimated 2 percent in 2025; absent consolidation, public debt would approach 60 percent by 2034. Staff recommend annual fiscal adjustment of 0.5 percentage points during 2027–30 to converge toward a sustained structural deficit of 1 percent of GDP and stabilize debt below 50 percent by 2030, while pointing to additional measures of roughly 1.5 percent of GDP to maintain that deficit through 2040. The statement also highlights tax compliance initiatives including reintroducing electronic registration of sales, notes property tax collection at 0.3 percent of GDP versus an OECD average of around 1.7 percent, and cites a value-based property tax system as an option. On monetary and financial policy, the CNB’s 3.5 percent policy rate is assessed as broadly appropriate, reserves exceed 300 percent of the IMF’s reserve adequacy (ARA) metric, and staff reiterate the case for gradual balance sheet normalization via preannounced small regular foreign-exchange sales; for macroprudential policy, staff welcome tighter loan-to-value and debt-to-income limits for investment mortgages and note that a broader upswing extending to corporate credit could warrant raising the countercyclical capital buffer above 1.25 percent. IMF staff will prepare a report, subject to management approval, for discussion and decision by the IMF Executive Board.

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