The monetary tightening cycle begins
Overview:
The economy is showing clear signs of recovery after a sharp recession although fiscal tightening and limited credit availability will restrict the speed of the upturn. However, inflation is rising and so the central bank has started to raise interest rates. The balance of payments position remains vulnerable despite some reduction in the large current account deficit. The IMF program seeks to improve the medium-term economic growth rate compatible with macroeconomic stability by focusing on fiscal retrenchment (after a huge deterioration in the budget deficit last year), a more flexible exchange rate and the implementation of structural reforms. The main problem here, though, is that the government that secured the IMF agreement faces early parliamentary elections in the summer.