Prague - The credit rating of Czech cities and municipalities is deteriorating, even tough their total debt is slightly decreasing.
"The average credit rating of Czech municipalities decreased in 2010 compared to the previous year, however the drop was less significant than the one that took place from 2008 to 2009," said Vera Kamenickova from the Czech Credit Bureau.
The main cause of the drop was decreased tax revenues.
At the mercy of eurozone crisis: Czech economy in 2011
Czech economy has good reasons to fear Greek default
In the last two years, some analysts warned against growing debt of cities and municipalities in the USA, China and other countries.
In the Czech Republic, 380 municipal governments (roughly 6 percent of the total number) have the same rating ("C") as Greece.
Probably the worst case is Prameny, a municipality near Marianske Lazne in Western Bohemia. The municipal government has a CZK 100 million (EUR 4 million) debt and all its property under distraint.
The Czech Credit Bureau believes that the average rating further deteriorated in 2011. The data for 2011 will be released in fall this year.
"It is alarming that the proportion of municipalities with the best scoring is decreasing and municipalities with rating below the average are significantly growing. This may point to possible financial problems of municipalities in the future," warned Jan Cikler from the Czech Credit Bureau already in October 2011.
The Czech Finance Ministry and some regional governors call for a law that would allow municipalities to file for insolvency. So far, this option is available only to companies and private persons.
A draft bill was prepared by the finance and interior ministries already in 2010. However, the final decision is up to the Justice Ministry, which has only implemented several "preventive measures" so far.
The total debt of Czech municipalities increased 4 percent to CZK 50.9 billion (EUR 2 billion) in 2010. However, the total budget deficit decreased tenfold to CZK 1.4 billion compared to the previous year.
