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���������ֳ�-London-04 March 2008: ���������ֳ� has today upgraded the Czech Republic's Long-term foreign currency Issuer Default Rating (IDR) to 'A+' from 'A' and local currency IDR to 'AA-' (AA minus) from 'A+'. At the same time, the Short-term foreign currency IDR is affirmed at 'F1' and the Country Ceiling upgraded to 'AA+' from 'AA'. The Outlooks on the Czech Republic's Long-term IDRs are Stable.

"The upgrade reflects an improvement in public finances following strong recent fiscal outturns and the introduction of a wide-ranging reform of taxes and expenditure from 2008, which will help to contain the government deficit at around 2% of GDP. The Czech Republic's creditworthiness is supported by continued strong real income growth and a sound external position" said David Heslam, Director in ���������ֳ�'s Sovereign department.

���������ֳ� estimates the general government deficit at 2.2% of GDP in 2007 (ESA95 accruals basis), compared with an original deficit target of 4%. A new tax and expenditure reform programme will narrow the deficit further this year and is set to be broadly neutral in 2009: ���������ֳ� forecasts a deficit of 1.8% and 2.2%, respectively. At an estimated 29% of GDP at end-2007, government debt is in line with the median for sovereigns rated in the 'A' range and better relative to government revenues. Moreover, government debt is predominately in local currency, of long maturity and has a low funding cost.

A strong external finance position is a support for the sovereign IDRs. The Czech Republic's trade and services balances are in surplus, with moderate current account deficits (CADs) largely reflecting growing profits of foreign-owned companies. In turn, CADs have been more than covered by net inflows of foreign direct investment (FDI), with little reliance on external debt financing. Gross external debt levels compare well against its peer group and the Czech Republic is a net external creditor - a unique feature in central and eastern Europe (CEE) - and net external debt levels also compare well with its peer group.

Wider support to creditworthiness derives from institutional strengths of an EU member state and underlying political stability. At a nominal USD17,000, per capita income is in line with the 'A' median. On a purchasing parity basis, income levels are estimated at 81% of the EU average in 2007 (Eurostat), are above the peer group median and behind only Cyprus (92%) and Slovenia (91%) among the 'new' members states. While the governing coalition's control of only half of parliamentary seats raises the possibility of policy paralysis, it has been successful at passing legislation with the support of two renegade opposition members. However, little progress is expected over the short term in reforming the Czech Republic's public pension system, which constitutes a significant long-term liability for government finances.

The Czech Republic has a good inflationary record (averaging 1.8% in the five years 2003-07). Tax changes, higher global energy and food prices and emerging capacity constraints following three years of real GDP growth in excess of 6% have, however, contributed to inflation markedly exceeding the central bank's (CNB) medium term 3% (plus or minus 1%) target since late 2007. Further monetary tightening may be necessary and downside risks remain that higher inflation rates become entrenched. However, an expected economic slowdown, the CNB's strong credibility and few signs of higher inflation expectations increase confidence that that rate of inflation should return towards target over the next two years.

Contact: David Heslam, London, Tel: +44 (0)20 7417 4384; Edward Parker, +44 (0)20 7417 6340.

Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364.