Robust economic growth mitigates fiscal risks
Economic activity continued its roller coaster pattern in 2024, alternating between months of y/y growth below 5% and months above. Cumulative y/y growth remained at 5.1% on average from June to October.
In November both headline inflation (3.18% y/y) and core inflation (3.47% y/y) remained within the lower band of the inflation target range. The Central Bank continued to reduce the monetary policy rate, and a greater expansion of monetary aggregates was evident in November. But bank interest rates rebounded compared to the previous month.
Currency depreciation stayed at 5.3% in y/y terms in November, although exchange rate volatility increased from October. The Central Bank's net international reserves continued to decline in November, albeit more moderately than in October. External accounts performance continued to be positive, due to the strong expansion of exports of goods and services, robust remittance inflows and a moderate increase in goods imports.
Although central government spending soared and revenues fell in y/y terms in November, budget execution remains on schedule, but shows significantly higher growth in current spending than in capital spending. Finally, Congress approved the public expenditure law for 2025, introducing changes to the composition of expenditure but not to the deficit target of 3% of GDP.
Standard and Poor's and Fitch Ratings both maintain the country’s sovereign credit ratings, at BB with a stable outlook and BB- with a positive outlook, respectively, despite the withdrawal of the tax reform bill -- but indicated they would remain alert to unwanted changes on the fiscal front.
Meanwhile, amid the process of merging public institutions, Minister of Economy, Planning and Development Pavel Isa and two other deputy ministers from the institutions to be merged have resigned.
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