August 2, 2006
1. This statement provides information on data releases that have become available since the issuance of the staff report on July 19, and on the outstanding prior action. The new information does not change the thrust of the staff appraisal.
2. On balance, the new data suggest that economic developments are in broad conformity with the staff report. Year-on-year GDP growth in the first quarter of 2006 reached 5.6 percent per annum, up marginally from 5.5 percent in 2005. News on inflation in June was mixed—headline inflation (year-on-year) fell to 8.2 percent from 8.5 percent in May due largely to lower food prices, but core inflation (excluding food, alcohol, tobacco and energy) turned up slightly to 4.1 percent.
3. The 12-month current account deficit reached 14.7 percent of GDP at end-May, essentially unchanged from its end-April level. The broad-based growth of merchandise exports was especially strong during May, exceeding import growth by a large margin for the second consecutive month. FDI inflows remained strong, covering about two-thirds of the current account deficit during January-May. At the same time, large positive errors and omissions, amounting to some 3.2 percent of annual GDP during the period, also help to moderate concerns about the size of the current account deficit insofar as they do not reflect additional debt flows.
4. Fiscal developments continue to be favorable. The general government surplus reached 2.6 percent of GDP in the year to May (on a cash basis). Assuming that the ceiling on arrears was observed, the data suggest that the second quarter fiscal target under the program was probably comfortably met.
5. The prior action has been implemented. On 20 July 2006, Parliament adopted the VAT law on its second reading.