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Domestic spending has remained solid, but demand from other Asian countries has been slowing. Nonetheless, output is expected to grow at close to trend rates of around 6% this year and next, supported by infrastructure spending and rebounding exports. An intended hike in the price of subsidised fuel at mid-year will temporarily drive up inflation.

Lowering energy subsidies, as planned by the government, is an efficient way to create additional fiscal space and finance spending in priority areas, such as infrastructure and social programmes. Improving the quality of public capital spending and budget execution would also be useful. The authorities should stand ready to tighten monetary policy if inflationary pressures begin to emerge.