* Best result since 1995
* Driven by growth, strong employment, EU funds
* Drop in investments cut expenditure
(Adds prime minister, analyst comments)
By Robert Muller
PRAGUE, Jan 3 The Czech central state budget
reached a 61.77 billion crown ($2.38 billion) surplus in 2016,
the Finance Ministry said on Tuesday, the first result above
zero since 1995 and a much better outcome than the market
A surplus had been expected for several months due to a
strong economy and labour market, low interest rates and a sharp
drop in state investments, but its size is above market
expectations of around 20 billion crowns and reduces borrowing
The centre-left government had planned a 70-billion deficit,
and sees a 60-billion gap this year.
"The government achieved a budget surplus thanks to economic
growth, rise in employment and high income from the EU budget,"
Prime Minister Bohuslav Sobotka said on Twitter.
The central state budget makes up the bulk of public
finance, where the Finance Ministry had estimated a deficit of
0.2 percent of gross domestic product.
The better central government result may put the overall
balance - scheduled for publication in April - into surplus as
well, Finance Minister Andrej Babis told a news conference.
Revenues were 100.8 billion crowns higher than initially
expected, including a 64.8 billion higher income from the EU,
while expenditures were 31 billion below plan.
The economic recovery cut unemployment to 4.9 percent in
November, the lowest level in the EU, supporting consumption and
reducing welfare costs.
The Finance Ministry estimates full-year economic growth at
2.4 percent in 2016 and 2.5 percent this year.
Babis said 2016 the surplus should cover part of state debt,
which he said was at 34.3 percent of GDP.
"We as the ministry will propose to use (the surplus) to cut
debt," he told a news conference.
But Sobotka said the extra money could also be shifted into
2017, which would eliminate this year's planned deficit.
Government bond yields have dropped into negative territory,
thanks to the strong fiscal position but also due to foreign
investors piling into Czech assets to take advantage of an
expected decision by the central bank to let the crown currency
strengthen later this year.
This has enabled the Finance Ministry to charge investors
for lending to the government and cut debt servicing costs.
The budget surplus could further limit bond issuance,
regardless of if it is used to cover debt directly or shifted
into 2017 revenue.
"Generally, I would now expect lower issuance activity, that
means smaller offer and downward pressure on yields," said Jakub
Seidler, chief economist at ING Czech Republic.
(Editing by Jan Lopatka and Robin Pomeroy)