Gross domestic product and its impact on the defence budget

 28. 05. 2020      category: Army of the Czech Republic

Many of us certainly wish our Army to achieve an allied commitment in the next years, i.e. a 2% share of GDP in the defence budget. However, what does the GDP consist of and how can it be affected by the impact of the Coronavirus?

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Picture: Many of us certainly wish our Army to achieve an allied commitment in the next years, i.e. a 2% share of the GDP in the defence budget and, at the same time, to continue successfully in modernization of outdated technology in spite of the events related to the Coronavirus (the BVP-2 in the picture) | army.cz

The Czech Republic ranks 13th in the world in the straightened Human Development Index (in front of Belgium), 14th in the Human Capital Index (in front of the United Kingdom) of the World Bank, 24th in the Economic Freedom Index (in front of Germany) and in the Global Innovation Index and 29th in the Global Competitiveness. The Czech Republic also has the lowest share of people at risk of income poverty in the European Union. The main industries are automotive production, electronics, engineering, high-tech technology, steel production, transport devices, chemical production and pharmaceuticals. The main agricultural products are cereals, vegetable oils and hops. That is what the official data says. However, the reality should be also perceived in a different way.  

The Czech GDP consists of several parts. However, the services perform the dominant part. It is about 60 %, followed by industry with 37.5 % and the rest is agriculture. The Ministry of Finance has now come up with a new prognosis and, compared to the original assumption (before the pandemic) of economic growth of about 2 %, a decline of at least 6 % is now estimated. There is also a strong decline of the Koruna against the Euro.  Regarding the budget deficit, a recently approved deficit of 200 billion Korunas is still expected (Nevertheless, the Prime Minister Babiš has repeatedly mentioned numbers more than doubled). This would lead to the general government deficit of 4.1 % of the GDP and then the total public debt should rise to 35.2 % of GDP. However, the budget deficit may be significantly higher in the end than it is stated now. Everything is interconnected with everything. Unemployment is also expected to rise de facto up to 50 % (from 2.2 % to 3.3 %). Tourism will be seriously weakened by the end of the year and, of course, other services that are the driving force of the economy are related to this. 

What can it mean for the Army? A percentage increase in the budget does not necessarily mean a real financial increase in the budget. It is necessary to count on the fact. We shall see the development in the coming months, or what the possible second wave of the Coronavirus pandemic will do. It is praiseworthy that even the Prime Minister Babiš, along with the Minister of Defence Metnar, are now visiting individual crews of the Army of the Czech Republic, promising the Army an overall improvement of the situation, new equipment, etc. Nevertheless, the question of the real amount of funding for our Army still remains a question.

 Author: Martin Šiška