The bonds were heavily oversubscribed, with demand for 23.1 billion Kč ($1.1 billion) worth, the Finance Ministry and the Czech National Bank announced Dec. 4. The state decided to sell only 13 billion Kč at the Nov. 29 auction.

The huge demand sent a clear signal to the government that it can still count on investors' willingness to continue lending it money, Raiffeisenbank Chief Economist Pavel Mertlík said.

The ministry originally wanted to issue bonds worth 8 billion Kč, and NextFinance economist Vladimír Pikora said that there had been worries among investors and government officials that the state would fall short of that mark due to investors' fears over public finance reforms and the deteriorating pension system.

The Finance Ministry plans to issue bonds worth 39 billion Kč and treasury bills worth 52 billion Kč in the first quarter of 2007 to help pay off the public debt.

On Dec. 5, the European Commission criticized the Czech Republic's estimate of its debt increasing as a percentage of gross domestic product (GDP) from 3.7 percent to 4.1 percent next year. The Organization for Economic Cooperation and Development already forecast a gap of 4.3 percent in 2008.

The government's debt — together with the debts of health insurers, off-budget funds and local budgets — forms the public debt, which totaled 901.3 billion Kč at the end of last year.

The Finance Ministry announced earlier this fall that this year's state budget deficit was likely to amount to 89.6 billion Kč by the end of December. It is expected to increase to 111.7 billion Kč in 2008.

However, the long-term investment outlook for the Czech Republic remains positive, and the country could actually be upgraded from the current A1 rating for government bonds in crowns and foreign currency, according to ratings firm Moody's Investors Service.

Raiffeisenbank analyst Aleš Michl said the 30-year bond was successful because Czech debt is still below the EU average, and the market lacks a similar instrument.

"Considering the 30-year bonds' average yield of 4.223 percent and the annual coupon of 4.2 percent, the Czech government is now borrowing money at the rates usual in Greece or Italy," Michl said.

In order to finance the debt, the Finance Ministry plans to issue domestic mid- and long-term bonds worth between 72.8 billion and 152.8 billion Kč next year, according to a 2007 state-financing strategy that the ministry made public Dec.1.