The Czech Republic’s international investment position and external debt – commentary

as of 31 March 2021

In 2021 Q1, the Czech Republic's international investment position (i.e. the balance of its financial assets and liabilities in respect of non-residents) recorded a decrease in deficit of CZK 162.8 billion to CZK 546.4 billion at the end of March. The deficit dropped by CZK 184.6 billion in year-on-year terms and represented 9.6% of GDP at current prices. The Czech Republic's external debt amounted to CZK 4,307.9 billion at the end of Q1 (i.e. 76% of GDP). It recorded a year-on-year decrease of CZK 167.7 billion.

Chart 1 - International investment position
(CZK billions, end-of-period balance)

External assets increased by CZK 216.3 billion to CZK 7,761 billion in Q1. The assets went up by CZK 139.5 billion year on year.

Chart 2 - Structure of investment position assets
(CZK billions, end-of-period balance)

The external assets of the banking sector (including the CNB, excluding portfolio investment and derivatives) accounted for 54.7% of total investment position assets, of which the CNB's reserve assets and other assets accounted for 47.1%.

The external assets of the corporate sector picked up in Q1 due mainly to an increase in short-term assets of corporations not associated with direct investment. The corporate sector's external assets accounted for 31.8% of total investment position assets.

Residents' holdings of foreign securities rose in Q1, accounting for 11.1% of total investment position assets.

The positive fair value of derivatives represented 1.9% of investment position assets.

The external assets of the government sector were unchanged in Q1, accounting for 0.5% of total assets.

Investment position external liabilities rose by CZK 53.5 billion in Q1, reaching CZK 8,307.4 billion at the end of March. In year-on-year terms the liabilities fell by CZK 45.2 billion.

Chart 3 - Structure of investment position liabilities
(CZK billions, end-of-period balance)

Direct investment liabilities increased in Q1, accounting for 56.5% of total external liabilities. Ownership interests in domestic firms went up as a result of reinvestment of earnings by foreign owners. Loans from affiliated companies also increased.

A decline in portfolio investment liabilities in Q1 was due to a lower volume of domestic bank bonds held by non-residents. Portfolio investment accounted for 20.1% of total liabilities.

The negative fair value of derivatives represented 2% of total liabilities.

The Czech Republic's externaldebt (the sum of its liabilities with stipulated maturity) rose by CZK 6.7 billion in Q1, totalling CZK 4,307.9 billion at the end of March. In year-on-year terms the debt increased by CZK 167.7 billion. As regards the time structure of the external debt, the share of liabilities with original maturities longer than one year was 47% of total debt liabilities.

Chart 4 - External debt by debtor
(CZK billions, end-of-period balance)

Turning to the sectoral breakdown of the external debt, the determining factor in Q1 was an increase in general government debt and corporate debt. The rise in general government's external debt was due to the government drawing a loan of CZK 52 billion from the European Commission (funds from SURE)^[1] and higher holdings of government bonds by non-residents. The government sector's liabilities accounted for 18.4% of the total external debt.

The external debt of other sectors picked up owing to loans drawn by corporations not associated with direct investment. The external liabilities of other sectors accounted for 44.5% of the total debt.

A decrease in the banking sector's external debt reflected repayment of short-term liabilities. Banking sector debt represented 37.1% of the total debt at the end of March.

Turning to the breakdown of the external debt by instrument, deposits and bonds are the most frequently used forms of debt financing (together accounting for 47.5% of the external debt).

Chart 5 - External debt by instrument
(CZK billions, end-of-period balance)

The external debt of the private sector accounted for 75% of the total external debt. Public sector liabilities accounted for the rest (25%). They comprise liabilities of the government, liabilities of private entities guaranteed by the government and liabilities of entities majority-owned by the state.

Chart 6 - External debt of public and private sectors
(CZK billions, end-of-period balance)

^[1] The temporary Support to mitigate Unemployment Risks in an Emergency (SURE) is available for Member States that need to mobilise significant financial means to fight the negative economic and social consequences of the coronavirus outbreak on their territory.