March 18, 2020 / 1:05 PM / 13 days ago

Czech government pledges $40 billion cash and guarantees for businesses

PRAGUE (Reuters) - The Czech government is preparing to offer 100 billion crowns of aid for businesses and 900 billion more in loan guarantees to help the economy withstand the impact of the coronavirus, Prime Minister Andrej Babis said on Wednesday.

FILE PHOTO: zech Republic's Prime Minister Andrej Babis arrives for the second day of the European Union leaders summit, held to discuss the EU's long-term budget for 2021-2027, in Brussels, Belgium, February 21, 2020. Ludovic Marin/Pool via REUTERS

The combined package could be worth nearly 18% of the central European country’s economic output in 2019 — a huge amount. The Czech Republic, like much of Europe, is shutting shops and factories, closing borders and putting people on lockdown to fight the spread of the virus.

“The direct assistance could be up to 100 billion crowns and loan guarantees up to 900 billion, in our estimate, which we would offer to business people, individual entrepreneurs and firms,” Babis told a televised news conference.

He also called on companies not to start firing workers, as labour offices started to report an influx of new job seekers, mainly from the tourism, hospitality and other service sectors.

Employers’ association KPZS, which represents businesses with 1.3 million workers, said on Wednesday the most pressing issue was to maintain employment by helping businesses pay their workers’ wages.

Babis said the government was looking at Denmark as an example, citing a plan there under which the government said it would pay 75% of salaries of workers in businesses hit by drastic measures to combat the virus.

The Czech economy started slowing last year, but the outbreak has wiped out estimates of at least 2% growth in 2020 and raised questions on the size of the likely contraction.

Industry Minister Karel Havlicek said the loan guarantees would also be available for self-employed individuals.

The government has started taking applications for a loan programme for small and medium-sized enterprises and offered firms and individuals the option to postpone some tax payments.

The country’s largest exporter Skoda Auto, part of the Volkswagen Group, has shuttered production for the next two weeks, as has Toyota-PSA joint venture TPCA.

The Czech Republic had 464 cases of illness from the virus and no deaths as of Wednesday morning.

Finance Minister Alena Schillerova said on Twitter she would propose an update to the 2020 budget that would raise the deficit above the approved 40 billion crowns.

The country has government sector debt of 31.2% of GDP, among the lowest in the EU, and has run fiscal surpluses in the past four years. Schillerova said its strong fiscal position would allow it to finance the budget gap via standard debt issuance.

Reporting by Jan Lopatka and Robert Muller; Writing by Jason Hovet; Editing by Alex Richardson and Catherine Evans

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