The outlook for FY2011 has changed sincethe last macroeconomic update in October 2010.1 While grossdevelopment product (GDP) growths is still projected to bearound 6.2 percent in FY11, inflationary pressures havestrengthened and the external position has weakened. Risingenergy and food subsidies are placing a strain on thebudget, but higher-than-anticipated revenues andlower-than-budgeted Annual Development Program expendituresleave sufficient fiscal space for the government to react tothese pressures. Progress on reforms is mixed, with advancesmade on Value Added Tax reforms, efforts to tightenliquidity and setting up a framework for public-privatepartnership projects. Developments on telecommunicationpolicy, the Anticorruption Commission, and policy responsesto stock market volatility are a cause for concern. Thegrowth outlook for FY12 remains good but there are risksthat need to be contained. Short-term risks include risingfood and fuel prices, deteriorating remittances, anincreased reserve drawdown, a growing quasi-fiscal deficit,stock market volatility and its potential impact on thebanking sector. Long-term risks include the inability tosufficiently alleviate power shortages, raise publicinvestment, and remove bottlenecks for private investment.
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