CZECH REPUBLIC – Without pension reforms, public debt in the Czech Republic will grow rapidly and could lead to higher interest rates, a new report says.

“Public debt has reached moderate levels and, without fundamental pension and health care reforms, it will continue to grow rapidly, risking a ratcheting-up of Czech interest rates,” the International Monetary Fund said.

“We welcome the government's intention to continue deficit reduction beyond 2006 and to prepare pension and health care reforms,” the IMF said. “However, these results would eventually become undone without prompt reforms to slow the growth of pension and health care spending.”

“On the pension front, long lags from the reforms to their impact on public spending warrant early action, and we urge the government to speed up the formulation of its proposals.

“As significant changes to pension system parameters are likely to be needed, forging social consensus on the necessity and nature of the reforms is also required.”

The fund said progress is slow or has stalled in the “crucial areas” of pension and health care reform. “The authorities' intention to adopt the euro around 2009-10 provides an added beacon for confronting these challenges and implementing policies that lay the foundation for a successful experience in the euro zone.”

The IMF said that the slow progress of reform “leaves public finances ill-prepared for coping with spending pressures from population ageing”.

Earlier this month the finance ministry said that the number of privately insured Czechs rose by 52,000 to 2.8 million in the first quarter of this year - the highest growth for the last four years.