Growth was at its weakest in a decade in 2012, reflecting both subdued external and domestic demand, including from fiscal tightening. Growth should gradually recover in 2013 as efforts to speed up the approval of large investment projects and the partial deregulation of foreign direct investment take effect. Headline inflation has remained stubbornly high, but inflation is expected to decline further as the effects of poor weather on food prices and hikes in administered prices fade.
Fiscal tightening and the new fiscal consolidation roadmap are welcome and should allow monetary policy to be eased further. On-going efforts to better target household transfers are commendable although further progress is needed. Energy subsidies remain high and should be cut. The tax system should also be reformed to raise more revenue in a less distortive way so as to boost private investment and competitiveness. In particular, the long-awaited reform of indirect taxes should be implemented swiftly. However, structural bottlenecks continue to constrain both investment and growth potential and addressing them is the key to boosting growth and raising living standards.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.
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