New government must tackle fiscal overshoot
Overview:
A new, pro-EU government has won a vote of confidence in parliament. However, its longevity is questionable given the failure, so far, to garner enough votes to elect a new President. Despite this, the new administration must still focus on reining in a rapidly deteriorating fiscal position. The economy is contracting sharply. This may have positive side-effects in helping to bring inflation down and reduce the previously large current account deficit but it is also increasing the unemployment rate and poverty levels. The exchange rate continues to weaken and banking sector deposits fall as political and economic uncertainty remains high. A loan from Russia has helped to boost the level of FX reserves and improve budget financing near-term but the new government must still restore fiscal credibility as soon as possible.