Czechia upped to stable rating, after delinking from Russian gas

US rating agency Moody’s Investors Service has increased its outlook for Czechia from negative to stable, meaning a rating deterioration is not expected in the foreseeable future. 

Moody’s justified this as mainly due to Czechia’s significant reduction of risk in connection with gas supplies from Russia. The agency kept the main investment rating at Aa3.

Czechia became independent of Russian gas this year, the rating agency noted, when it completely replaced it with gas from alternative sources. The demand for gas by companies and households has also structurally decreased, Moody’s added.

In Moody’s assessment, the Czech economy has only limited exposure to damage due to structurally higher energy prices, as energy-intensive industry is only a small part of its economy.

Czech economy growing

The confirmation of the rating at the Aa3 level reflects the basic strengths of Czechia – including strong growth dynamics, increasing levels of wealth and a competitive economy, high-quality institutions and the effectiveness of the measures being implemented, relatively low public debt and very good indicators of credit availability. 

In the agency’s opinion, moderate exposure to geopolitical risks should also be taken into account. Credit rating indicates the probability of repayment of loans, and greatly influences the willingness to lend to a state or entity, and on loan agreements.

Deep economic reform in progress

In addition, fiscal consolidation of approximately 2% of gross domestic product in the next two years, stabilising the debt burden, also contributes to a stable outlook. Comprehensive pension reform, if fully implemented, will substantially reduce long-term growth in the costs of an ageing population.

The pension reform includes changes in the valuation of pensions, the tightening of early retirements and the linking of the statutory retirement age to the future development of life expectancy, Moody’s wrote.