SAO Annual Report: The pandemic cannot be blamed for everything. In a number of areas, it only highlighted problems that have not been addressed by the state in the long term.
Press release – 6 April 2021
The Supreme Audit Office has issued its Annual Report for the year 2020. It summarises SAO’s findings from 30 audits and assesses the steps that the state took in selected policies as well as its financial management. According to the SAO, the year 2020 was marked by a number of governance issues exacerbated by the Covid-19 pandemic. In particular, the health crisis has had a negative impact on public finances and on planning the state budget. However, in addition to the health crisis and its effects, the state’s long-term inability to complete major projects designed to have a positive impact on citizens’ lives or on the performance of the Czech Republic, has become apparent. The common denominator of a significant part of the problems is the fact that the state is unable to act in a purposeful and systematic manner, be it in building infrastructure, advancing digitalisation, or in improving the social sector.
“The Covid-19 pandemic has certainly had a harsh impact on the financial management of the state. However, from our point of view, it has taken on the role of a catalyst, it amplified the problems connected with the management of public funds that our country has suffered from in the long-term and which we have repeatedly highlighted,” commented the President of the SAO, Miloslav Kala, on the Annual Report.
In 2020, like all other countries, the Czech Republic had to deal with the negative consequences of the Covid-19 pandemic. However, the Czech economy had signs of a slowdown even before the outbreak of the pandemic, which further exacerbated the downturn. The year 2020 thus ended with the worst economic decline since the establishment of the independent Czech Republic.
The state budget deficit reached CZK 367.4 billion, mainly due to a lower annual state budget revenue execution, a lack of savings, and a significant increase in expenditures. However, not only Covid-19-related expenditure increased, but mainly current expenditure, which was not related to the pandemic. The total expenditure increased by CZK 291 billion year-on-year in 2020, to a total of CZK 1,842.9 billion. However, at least CZK 147 billion was not directly related to the Covid-19 pandemic, such as a one-off contribution to pensioners, debt elimination of hospitals and so on.
While the government debt ratio was 28.5 % of GDP in 2019, it increased to 36.5 % of GDP year-on-year in 2020. While the Czech Republic is still one of the EU’s least indebted countries, the European Commission estimates that the pace of debt is one of the fastest. Such an outcome threatens the future stability of public finances.
However, the outcome of the state’s financial management cannot be attributed to the impact of the pandemic alone. It is also caused by the fact that the state is reluctant to solve long-term problems. The state’s inefficiency has been reflected not only in the response to the pandemic, but also in areas such as the development of transport infrastructure, the digitalisation of government administration, or the social sector. Excessive bureaucracy, slow administrative procedures, and a lack of coordination have also had a negative impact on these areas.
For example, the construction of motorways in the Czech Republic is significantly slower than in neighbouring Poland. In 2020, only 21 km of new motorway sections were put into operation in the Czech Republic, while in Poland it was 138 km. An audit on motorway and road bridges also confirmed problems in the preparation and progress of the construction works and the lack of care for transport infrastructure. Out of a total of 17.5 thousand bridges, 3.4 thousand were in a poor or even in an emergency condition.
The quality of the state’s services to citizens remains a challenge. E-government would make a difference for the better. While the expenditure on the introduction of e-government is constantly increasing, the amount of funds spent on this area is not delivering the expected results. Since 2016, ministries have spent at least CZK 67 billion in this area, yet the Czech Republic has fallen by two places year-on-year under the DESI sub-indicator “Digital Public Services”, ending 22 among the EU countries.
For example, the Ministry of the Interior spent almost CZK 250 million on the e-ID system and the Citizen Portal, yet the offer of services to citizens was limited. In addition, the Citizen Portal has been used by only a minimum share of adult citizens.
The state also does not sufficiently address long-term social challenges such as the pension reform, employment of older people, and social exclusion. For example, the proportion of job seekers over the age of 50 is still increasing. The state has spent CZK 6.5 billion in support of employment of this age group. The funds have contributed to the increase in employment, but only for as long as the financing of these projects was running.
The low performance of the public sector and citizens’ distrust in state institutions are a serious obstacle to addressing the long-term challenges as well as the current situation. The SAO has repeatedly pointed out that it is the underperformance of the public sector that negatively affects the competitiveness of the Czech Republic, which is confirmed by the results of international comparisons. In 2020, the World Economic Forum published a dedicated thematic report on the capacity of various countries to recover from the crisis. A total of 37 countries were evaluated in the summary indicator of preparedness for economic transformation, and the Czech Republic ranked 24.
An interactive annex to the annual report can be found here:
https://www.nku.cz/scripts/detail.php?id=11749.