MNI INTERVIEW2: Czech NRB Bonds To Cut Dependency On EU Funds

The Czech National Investment Bank (NRB) is ready to issue state-backed securities paying 50 basis points above AA-/Aa3-rated sovereign bonds once lawmakers approve legislation to allow it raise funds independently, the organisation’s head told MNI.

The new law prepared by the Czech ministry of finance should be passed before the next parliamentary election in 2025, with the NRB considering Germany’s KfW a role model, Tomas Nidetzky said in an interview.

“For every one crown of public money we spend in the form of guarantees we are already able to generate seven more from private funds,” he said. “Pension funds and insurance companies are ready to invest in these bonds, if such bonds are backed by the state."

He added: “We are also discussing with the government how these funds might be allocated to viable, sustainable projects. And they should be repaid, not rolled-over, with a coupon around 50 basis points above sovereign bonds.”

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The Czech Republic needs to transform its manufacturing economy from being one of several links in a supply chain often ending in Germany, to one with higher value-added of its own, said Nidetzky, a member of the Czech National Bank Board from 2016-22. (See MNI INTERVIEW: Czech Rates Too High- Ex-Deputy Governor)

The country also needs to wean itself off its dependency on grants and subsidies from the European Union, he said. Only a small portion of these are presently routed through the NRB to small and medium-sized enterprises, though there is potential to finance larger-scale projects such as municipal infrastructure, environmental and energy projects.

“Over the last programming period we received grants and subsidies worth 500 billion crowns, of which only 4% was invested via the National Development Bank through renewable financial instruments,” Nidetzky said. “For the current programming period the share of these renewable financial tools is even lower, 2.4%. This is not sustainable over the long-term as the average of the EU is 9%.”

Still missing is a comprehensive national economic growth policy that can outlast changes in government, while also supporting and incorporating decisions taken at EU-level in such key areas as green transition and climate goals, he said.

“Four-year political programs are often changed and a systemic approach is missing. We are missing a long-term concept of financing of the kind seen in Germany with the KfW, which is very much our role model.”