Czech Republic has one of the highest GDP growth rates and lowest unemployment levels in the European Union. Despite this, Czech Republic economy is expected to be adversely affected by COVID-19 pandemic in 2020. The real gross domestic product (GDP) of Czech Republic is expected to shrink, unemployment level to increase and current account balance to continue its negative growth due to COVID-19 this year. As of 10^th June 2020, Czech Republic had 9751 confirmed COVID-19 cases out of which 7053 people have recovered from the disease while 328 have lost their lives.

In this blog post we will be covering economic impact of COVID-19 pandemic alongwith the containment, social, fiscal, monetary and employment related policies of Czech Republic under following sections –

1. Impact of COVID-19 on Czech Republic Economy in 2020

2. COVID-19 Containment Measures of Czech Republic

3. COVID-19 Related Fiscal Policy Measures by Czech Republic

4. COVID-19 Related Monetary Policy Measures by Czech Republic

5. COVID-19 Related Employment Policy Measures by Czech Republic

6. COVID-19 Related Social Policy Measures by Czech Republic

We have covered various macroeconomic factors and PESTLE, SWOT and risk analysis for Czech Republic in separate market research reports.

1. Impact of COVID-19 on Czech Republic Economy in 2020

Czech Republic’s real gross domestic product (GDP) was CZK 4859.79 billion in 2019 and due to COVID-19 outbreak it is estimated to shrink by 6.5% to be around CZK 4543.90 billion in 2020.

Czech Republic’s unemployment rate was 2.001% of total labor force in 2019. Due to slowdown in global economic activity due to COVID-19 pandemic the unemployment is expected to increase by 73.32% and reach 7.5% in 2020.

Czech Republic’s current account balance which has been constantly decreasing since 2018. It is expected to decrease its current account balance at -2.057% of GDP in 2020 from -0.015% of GDP in 2019. This means Czech Republic will remain net borrower from rest of the world in 2020.

As of 08^th June 2020, the Czech Republic government has taken following fiscal, employment and social policy measures to contain coronavirus (COVID-19) pandemic.

2. Coronavirus (COVID-19) Containment Measures of Czech Republic

Quarantine/Confinement

• From 16 March 2020, the free movement of people within Czech Republic was banned, with some exceptions (travel to work, medical facilities, family and other necessary trips).
• On 12 March 2020, the Government declared a state of emergency for 30 days (prolonged to April 30).
• As of 13 March 2020, all citizens and foreigners with residence travelling from risk areas have to automatically undergo a 14-day quarantine upon their return to the Czech Republic.
• As of 19 March 2020, everybody needs to wear a face mask or otherwise cover their nose and mouth while outside of their residence.
• As of 25 March 2020, maximum of two persons can stay together at publicly accessible places to protect public health (exceptions to family members, job related activities etc.).
• As of 30 March 2020, “smart quarantine” started in testing mode (mapping the contacts of positively tested individuals for COVID-19 using modern information technologies).
• As of 7 April 2020, individual outdoor sports were allowed (in groups of up to two persons), if safe distance with others is respected. Participants do not have to wear protective masks.
• On April 23, the government has decided to accelerate the easing of emergency measures.
• From Friday, April 24, permitted outdoors exercise will be limited to a maximum of ten participants (unless they are family members or professional sportsmen). Distance of at least two meters will need to be respected. Churches can be attended with up to 15 people present. Association activities of no more than 10 people are permitted.
• The government has also decided to speed up the planned opening up of shops and establishments.
• From 27 April 2020, in addition to the already announced smaller shops and establishments, larger retailers will be able to open, of up to 2,500 square meters of sales area. Gyms can also open, but without the possibility of using changing rooms and showers, and zoos and botanical gardens (except indoor parts). All operators will have to meet strict hygiene conditions and requirements, such as keeping a distance of at least two meters between customers, disinfection or shop equipment.
• From 27 April 2020, new measures in education also apply and the rules for crossing state borders also changed, allowing also EU citizens that come for work or university studies to enter the country.
• On 4 April 2020, the government announced plans to start lifting restriction in 5 phases over the period until the 8 June, when even the largest places of business, shopping centers, indoor dining areas, theatres, castles and sporting events with attendance of up to 50 persons should be opened. The schools and universities will also gradually resume operations

Preliminary timeline for business and other activities:

• By 20 April 2020: craft workshops, farmers' markets, car dealers, outdoor training activities of professional athletes, weddings of up to 10 people,
• By 27 April 2020: business premises up to 200 m2,
• By 11 May 2020: business premises up to 1 000 m2 (only if they are not in shopping malls over 5 000 m2), driving schools, gyms and fitness facilities (but without using locker rooms and showers),
• By 25 May 2020: restaurants can open their gardens while serving food there, beauty services, museums, zoos (outdoor areas only),
• By 8 June 2020: shopping centres, business premises over 1 000 m2, restaurants, accommodation services, taxi services, theatres, cultural events for up to 50 people, weddings, zoos (including indoor areas),
• By end of June 2020: all the rest activities.

Travel bans/restrictions

• From 14 April 2020, travelling abroad for "essential activities" were allowed, but upon return, a health check and a strict 14-day quarantine was to be observed.
• On 01^st June 2020, the government approved a system allocating foreign countries into three categories indicating low, medium and high risk.
• From 15^th May 2020, Czech Republic citizens can travel to countries in the first two categories without restrictions. If foreign countries will have further restrictions on entry into their territory after June 15, travel will be governed by the conditions of the other party.
• On 05^th June 2020, state border controls with Austria and Germany ended. Czechs do not have to prove themselves with a negative test for COVID-19 or go to quarantine, there will only be random checks for compliance with restrictions on the movement of foreigners who are not among the established exceptions to the ban on entry into the Czech Republic. Border protection will continue to apply only at the air border.

Closure of schools/universities

The schools and universities will also gradually resume operations under certain limitations over the period until the end of June.

• As of 11 May 2020, students in the last year of primary schools can return to schools together with students in the last year of secondary schools and conservatories. Participation will not be mandatory and can take place in a group of a maximum of 15 people.
• As of 1 June 2020, a voluntary return to schools is possible for pupils of special primary schools and pupils of high schools and conservatories for the purpose of practical teaching. The maximum number of students in one group is 15.
• As of 8 June 2020, all pupils and students of primary schools, secondary schools, conservatories and higher vocational schools can return to schools voluntarily for consultations. The maximum number of students in one group is 15.

Cancellation of public events / Closure of public places

As of 13 March 2020, the Czech Republic government banned all public events with participation of over 30 people. The public was also banned from entering entertainment, sports and wellness premises, music and social clubs, galleries and libraries (until further notice).

Obligatory shut down of economic activities

• From 14 March 2020, all stores are closed except for grocery stores, pharmacies, sellers of sanitary goods, medical devices, electronics, and fuels, animal welfare and feed shops, opticians, newsagents, laundromats and sales via the Internet and other remote stores.
• From 26 March 2020, there are new exceptions to this ban: locksmiths and repair, maintenance and installation of household machinery and equipment, funeral services and car washes. The public was also banned from entering entertainment, sports and wellness premises, music and social clubs, galleries and libraries (until further notice). Accommodation providers and restaurants are banned from operation.
• As of 27 March 2020, accommodation services are allowed to accommodate guests, who need to be accommodated for the purposes of work or business. All public authorities and administrations instructed to switched to limited operations.
• As of 9 April 2020, certain shops can re-open (building material shops, sales and services for bicycles, etc.), but they need to abide by strict hygiene rules and ensure at least 2 meter distance between customers.

3. Coronavirus (COVID-19) Related Fiscal Policy Measures by Czech Republic

Overall fiscal measures

On 20 April 2020, government approved raising budget deficit to CZK 300 billion from 200 billion couple of weeks ago, and from 40 billion planned before the onset of the crisis. It was approved by parliament on 22^nd April 2020.

On 11 May 2020, the Ministry of Finance updated its estimate of support to the economy during the COVID-19 crisis, in the total amount of 20.4% (CZK 1.13 trillion). Direct budget support equals 4.6% of GDP, deferred taxes and levies 0.4% of GDP and liquidity support and guarantees 15.4% of GDP. This does not include measures such as interest moratorium, deferral of electronic record of sales (ERS) or higher amounts for social assistance paid.

Health system measures

The Ministry of Finance announced on 04^th March 2020 that it would start regulating prices of protective respiratory masks (FFP3 class) and prohibited exporting the masks and their sale to the general public.

From 16 March 2020, the government had banned all doctors, dentists, pharmacists, and medical staff from taking their leave during the emergency. This order was recalled on 09^th April 2020.

All acute inpatient care facilities have been ordered to allocate maximum possible bed capacity to COVID-19 patients, including the provision of necessary staff and appropriate safety conditions.

Medical students in their last two years of studies and students in the last two years of nursing schools were called to assist in the provision of health services.

Exports of drugs from the Czech Republic has been prohibited. Planned surgeries that can be delayed were ordered to be postponed.

With the aim to boost health system capacity a bill was proposed (06^th April 2020, pending parliamentary approval), so that non-EU medical staff without fully validated degrees will be allowed to work in Czech hospitals for the time of the crisis and immediately after.

Income support measures for individuals and households excluding tax and contribution changes

Czech Republic government on 31^st March 2020 approved a targeted employment support programme (Antivirus, launched on 06^th April 2020), to compensate for all or part of salary costs for the time of the quarantine or emergency measures (from 12^th March 2020 to the end of April; which was further extended to end of May on 27^th April 2020. Employees will receive all or part of their wages, subsidized by the state, depending on the exact reason and situation of reduced activity. For example, employees ordered into quarantine will receive 60 % of their salaries, while employees working in firms that had to stop operations by a government order will be compensated in full. In both cases the government will reimburse the employer 80% of the employee compensation (up to CZK 39 000 per employee). Employees in firms facing inputs supply issues or drop in sales will receive 60-100% of their salaries, with the state reimbursing 60% of the costs (up to CZK 29 000 per employee). The estimated total costs of the program is CZK 33 billion (0.6 % of GDP).

The self-employed who prove that they have been economically damaged by the crisis measures will receive a one-off financial assistance of CZK 25 000 (non-taxable) which was approved by the government on 31^st March 2020.

The Government released CZK 3.3 billion for the 2020 Rural Development Program. This funding should help entrepreneurs in agriculture, food and forestry while fighting coronavirus crisis. The main reason for this support is ensuring the Czech food independency. The Government has also increased funds by CZK 1 bn for the Support and Guarantee Farm and Forestry Fund, to provide farmers and foresters with more liquidity (delay of loan repayments).

The government has approved financial contributions for the self-employed and employees currently at home to ensure childcare as compensation for loss of earnings (due to schools closure). The state will pay CZK 424 per day (up to 31 days, maximum roughly EUR 500) to all self-employed persons and 60% of reduced assessment base to employees for taking care of children aged 6 to 13 (on condition that a second member of the family no longer receives the care allowance). The government decided on 17^th April 2020 to raise the latter to 80%. On 05^th May 2020 this was extended till 08^th June 2020.

Compensatory bonus to the self-employed persons of CZK 500 per day, where the activity performed is the principal activity and there is a proved sufficient drop in sales compared to a year before.

Tax and contribution policy changes

On 25^th May 2020, the government proposed an anti-crisis tax package targeting the most affected sectors. The focus of the package is reducing the VAT rates from 15 to 10% in a number of sectors: accommodation services, admission fees to cultural events and sporting events, admission fees to sports grounds, fare on ski lifts and admission fees to saunas and other similar facilities. The package also includes a reduction to 25% of the road tax on lorries over 3.5 tons and shortens the refund time for the overpayment of excise duty on "green diesel".

Self-employed will be given a six-month waiver on the (minimum) payments of health and social insurance (May to August).

Introduction of the institute of tax return retroactivity - entrepreneurs will be able to recover any loss reported in 2020 in their tax bases in 2019 and 2018, thereby obtaining a refund from the Financial Administration.

Exemption of the VAT on goods that are supplied free of charge (e.g. test kits and diagnostic test tools for COVID-19, protective clothing, thermometers, disinfectants and sterilization products, other medical devices and medical supplies) and the goods used to manufacture these goods.

Support to firms

The Federal Council adopted an ordinance on April 16 with several measures to prevent bankruptcies, including a delay for SMEs and independents for being declared bankrupt due to the covid-19 crisis.

Liquidity buffer in the area of tax

Liquidity reserve in the tax area on federal level: companies are able to postpone payment deadlines without interest on arrears. The interest rate is reduced to 0.0% for VAT, certain customs duties, special consumption taxes and incentive taxes between 20 March and 31 December 2020; i.e. no default interest will be charged during this period. An identical regulation applies for direct federal tax invoices from March 1 to December 31, 2020 that become due within this period. Withholding tax and stamp duty do not appear to benefit from these advantages.

Some cantons have also already communicated measures relating to cantonal and municipal taxes. In particular, most of the cantonal tax authorities have implemented certain measures in connection with the cantonal/communal taxes (e.g. extension of payment deadlines, waiving of late interests, postponement of filing deadline of the 2019 tax return, etc.).

The due dates for these taxes and duties do remain formally in place. Therefore, companies wishing to settle tax liabilities after their due date must submit a corresponding application – in practice, this can be fairly informal in nature – to the tax authorities. The form of notification can vary depending on the type of tax in question.

Public sector subsidies to businesses

The government approved on March 31 a targeted employment support programme (Antivirus, launched April 6), to compensate for all or part of salary costs for the time of the quarantine or emergency measures (from 12 March to the end of April; extended to end of May on 27 April 2020). Employees will receive all or part of their wages, subsidised by the state, depending on the exact reason and situation of reduced activity. For example, employees ordered into quarantine will receive 60 % of their salaries, while employees working in firms that had to stop operations by a government order will be compensated in full. In both cases the government will reimburse the employer 80% of the employee compensation (up to CZK 39 000 per employee). Employees in firms facing inputs supply issues or drop in sales will receive 60-100% of their salaries, with the state reimbursing 60% of the costs (up to CZK 29 000 per employee). The estimated total costs of the program are 33 billion CZK (0.6 % of GDP).

The parliament passed a bill on 08^th April 2020 that allows for individuals and companies affected by the coronavirus to delay paying their rents and introduces a ban on evictions of companies/individuals unable to pay rents.

On 18 May 2020, within the COVID rent programme, the government approved a contribution of half of the payment for commercial rent to entrepreneurs that had to close establishments, with the maximum amount of support at CZK 10m for the period from April to June.

Other programmes include: COVID Technology Program 19 (subsidy for projects directly linked to the fight against the further spread of coronavirus through the acquisition of new technological equipment and facilities, CZK 300 million in total); Czech Rise Up Program (encourage the introduction of new solutions to fight the coronavirus crisis by supporting innovative companies, including start-ups, CZK 200 million in total); Emergency package for Czech exporters and other support to exporters.

Deferral of taxes and social security contributions and bringing forward expenditures within current fiscal year

• On 07^th May 2020, Czech Republic government approved deferral of social insurance payments (approved by parliament on May 13). Firms will be able to postpone social insurance payments (24.8% of wages) for the period May-July 2020, until 20^th October 2020.
• 'Waiver of the advance payments (not the tax itself) for corporate and personal income tax in June.
• Road tax advances due in April and July can be paid until 15^th October 2020.
• The government has introduced waivers of any penalties and default interest for corporate and personal income tax payments up to 1 July.
• It will also postpone the launch of the final phase of Electronic Sales Control System (EET) until January 1st, 2021.

Public sector loans or capital injections to businesses

The government introduced the COVID I loan program for SMEs in the total amount of CZK 5 billion (about Euro 180 million, 0.1% of GDP). SMEs will be able to apply for a direct interest-free loan in the range of CZK 0.5 to 15 million. Loans are granted up to 90% of eligible expenditure with a maturity of 2 years including the possibility of deferred repayment for up to 12 months.

COVID Prague is available from 20^th April 2020 for Prague entreprenerus and SMEs (Since COVID II is funded by the EU, it is not possible to support projects in Prague). A total of CZK 600 million was allocated for the COVID Prague.

Loan guarantees by the state benefiting private borrowers

The government has further approved COVID II program with another CZK 5 billion allocation in the form of guarantees for loans (CZK 10k to 15million) from commercial banks (with annual deferral of repayments), where the Czech-Moravian Guarantee and Development Bank will be subsidising the interest rate. This is expected to facilitate distribution of up to CZK 30bn among the programme participants.

On 18^th May 2020, The government approved the COVID III program worth CZK 150 billion of guarantees. The self-employed and companies with up to 250 workers can receive a 90% guarantee and companies with 250 to 500 employees an 80% guarantee.

4. Coronavirus (COVID-19) Related Monetary Policy Measures by Czech Republic

Monetary policy

On 7th May 2020, the Czech National Bank (CNB) Board lowered the policy rate by 75bp, to 0.25%. This follows two interest rate cuts in March (of 125bp, cumulatively).

The CNB announced it was taking additional measures to support liquidity in the financial sector. For credit institutions, it is broadening the range of eligible collateral to include mortgage bonds and it will introduce liquidity-providing operations with three-month maturity. In addition, it is preparing a liquidity-providing instrument also for certain non-bank entities.

The Czech National Bank (CNB) Board unanimously lowered the policy rate by 75bp on March 26 to 1.00% at its regular monetary policy meeting. This follows a 50bp cut from ten days previously.

The CNB expects the covid outbreak to lead to a strong recession that will last throughout the year. In its forward guidance the central bank stated that further measures could include rate cuts, liquidity support, interventions to stabilise the FX and launching QE.

An amendment to the Act on the Czech National Bank (CNB) was passed, that temporarily allows the CNB to trade instruments with maturities of more than one year. In addition, the CNB can from now on trade also with non-bank financial institutions, such as insurance and pension companies or with other institutional investors.

Prudential regulation

On 01^st April 2020, the CNB relaxed credit ratio limits for new mortgages, to avoid excessively tight credit standards amid the weakening economy. The limit on the LTV (the size of the loan relative to the value of the property) ratio was increased to 90% (from 80%, but this change does not apply to "investment" mortgages). The limit on the DSTI ratio (total debt service relative to net monthly income) was raised to 50% (from 45%). The current limit on the DTI ratio (debt relative to net income) was cancelled.

The CNB Board also lowered on 26^th March 2020 the countercyclical capital buffer rate to 1.00% with effect from 1^st April 2020 (from a current level of 1.75%. Otherwise, the banking system is judged stable and well capitalised, able to withstand adverse developments.

5. Coronavirus (COVID-19) Related Employment Policy Measures by Czech Republic

Income support to persons losing their jobs or self-employment income

Compensation Bonus, which will directly support self-employed persons with the amount of CZK 25,000. This will be paid if the following conditions are met: a) it is a self-employed person according to the pension insurance law, b) the activity performed is the principal activity (under clearly defined conditions it may also be an ancillary activity), c) the decrease in gross sales during the period from January to March 2020 was at least 10% compared to the period from January to March 2019 (if a business was set up after January 2019, the comparison counts for the first 3 months period after setting up the business), d) the entity achieved at least CZK 180,000 of gross income in 2019 or at least CZK 15,000/month in case the business was set up after January 2019. For the self-employed, the health and social insurance payments are suspended/forgiven for 6 months (March – September). For many taxes, deadlines for submissions of tax proclamations and for payment of the tax has been postponed (or sanctions will not be applied).

Helping firms to adjust working time and preserve jobs

Support programme “Antivirus” introduced. STW is envisaged in Czech Labour Code. Within this programme, employers can be partially compensated (50-80%, depending on the reason) for wage costs in case of work obstacles on the side of the employees and/or the employers (for example when employees cannot work due to ordered quarantine or when employer is unable to assign work to workers due to extraordinary emergency measures adopted by the Government related to outbreak of COVID-19, for example closure of business due to limited supply of raw materials, limited demand, high share of employees in a quarantine or staying home with their children).

Financial support to firms affected by a drop in demand

Proposed waiver of the advance payments for corporate tax in June. Introduction of the institute of tax return retroactivity - entrepreneurs will be able to recover any loss reported in 2020 in their tax bases in 2019 and 2018, thereby obtaining a refund from the Financial Administration. Moratorium proposal on the repayment of loans and mortgages signed before 26 March 2020, which will be binding on all banks and non-banking companies, has been adopted. Both natural persons and corporate debtors will be able to suspend their repayments for three or six months, based on their choice. The debtor has to notify this intention to its creditor by declaration that he/she/it is taking this action because of the negative economic impact of the coronavirus pandemic. However, he/she/it will not have to prove these reasons. Companies who were forced to close their premises due to government orders, will be entitled to postpone their rents. The deferral will apply from 12 March to 30 June and deferred payments will have to be paid back within 2 years. Also, a ban on ending the rent contract of people who are not able to pay rent due to financial distress caused by Covid-19 epidemic, has been adopted The government introduced the COVID I loan program for SMEs in the total amount of CZK 5bn (about 180m EUR, 0.1% of GDP). SMEs will be able to apply for a direct interest-free loan in the range of CZK 0.5 to 15m. Loans are granted up to 90% of eligible expenditure with a maturity of 2 years including the possibility of deferred repayment for up to 12 months.

6. Coronavirus (COVID-19) Related Social Policy Measures by Czech Republic

Reducing exposure to Covid-19 in the workplace

Employers are responsible for protecting the health and safety of employees at work. They are required to implement preventative measures to ensure employees are not exposed to conditions that could be harmful to their health or safety while working.

Income support to quarantined workers who cannot work from home

Employees ordered into quarantine will receive 60 % of their salaries and the government will reimburse the company in full.

Helping dealing with unforeseen care needs

Extension of the existing paid family leave programme. Previously, the Czech Republic's family leave programme allowed working parents with children under age 10 to take paid leave for up to 9 days at a time (16 days for single parents) in cases of unforeseen school closure. This has been extended to cover the whole school closure period, and expanded to parents with a child under age 13. Paid by public social insurance through a benefit set at 80% of earnings. This leave also extends to people who need to care for elderly or disabled relatives, if the facility designed for their care has closed. The government has also provided a benefit worth CZK 424 per day to self-employed people who are taking care of a child between 6 and 13 years of age and are not able to work.

Support to individuals and households

The parliament passed a bill on 08^th April 2020 that allows for individuals and companies affected by the coronavirus to delay paying their rents and introduces a ban on evictions of companies/individuals unable to pay rents.

On 1^st April 2020, the government approved a proposal to declare a moratorium on the payment of loans and mortgages. Debtors - individuals as well as companies will be able to interrupt their payments for a period of three or six months.

Support to firms

The parliament passed a bill 08^th April 2020 that allows for individuals and companies affected by the coronavirus to delay paying their rents and introduces a ban on evictions of companies/individuals unable to pay rents.

The bill to mitigate the impact of the crisis in the tourism sector was proposed (on 06^th April 2020, pending parliament approval), to help travel agencies with a one-year transitional period for reimbursement of already paid holidays.

On 01^st April 2020 the government approved a proposal to declare a moratorium on the payment of loans and mortgages. Debtors - individuals as well as companies will be able to interrupt their payments for a period of three or six months.

Source – With inputs from Organisation for Economic Co-operation and Development (OECD), International Monetary Fund, World Bank, International Labour Organization (ILO) and Government of Czech Republic.