The climate-fiscal timebomb: Czechia

Fiscal outlook

Czechia recorded a 2% deficit and a debt-to-GDP ratio of 43.3% in 2024.

Deficit measures the level of borrowing in a given year. Debt to GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

In 2024, Czechia witnessed extreme rainfall and flooding, which were made twice as likely due to climate change. Dozens of houses and thousands of roads and bridges were damaged, with over 250,000 households left without electricity, heat, and drinking water. Authorities estimate the damages caused at €2.82bn. As a response, Prague increased its budget deficit target to finance flood relief and secured EU Solidarity Fund support in 2025. At the same time, the increased prevalence of droughts weakened the country’s forests and may make forest infestation, such as the outbreak of bark beetles, more likely, with the country experiencing the worst infestation in at least 200 years.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Czechia’s GDP declining by 10% by 2050 and 15% by 2070 under current policies. Our modelling shows the following:

• Under current policies (BAU – business as usual), debt is 50 pps higher than the baseline in 2050 and 175 pps higher in 2070.

• With early EU mitigation and sufficient adaptation spending, debt is 35 pps higher in 2050 and 65 pps in 2070.

• Delayed EU investments and insufficient adaptation results in higher debt levels of 46 pps in 2050 and 87 pps in 2070.

• EU early action combined with global cooperation results in 5 pps higher debt levels than the climate-agnostic baseline in 2050 and 8 pps lower levels in 2070.

• Progressive taxation, such as a wealth tax, combined with EU early action would decrease debt by 3 pps in 2050 and by 10 pps in 2070 compared to the climate-agnostic baseline.

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