Recent Economic Development
- Sluggish domestic demand and weakening exports drag on growth.
- Inflation moderates amid lower food price inflation and subdued domestic demand.
- Steps were taken to restore fiscal sustainability in the medium term.
- Fiscal policy became tighter amid large revenue shortfalls.
- The supplementary budget for 2015 was adopted in early November and the draft 2016 budget is under discussion.
- Public investment financed by the DBM became tighter.
- Monetary conditions have tightened.
- The banking sector remains under strain with tighter funding conditions and deteriorating asset quality.
- Adjustment in the current account continues with import compression.
- Large external financing mitigated the immediate balance of payments pressure, at the cost of higher external debt.
- Exchange rate adjustment has been limited in recent months.
Economic Prospects and Challenges
- Growth is expected to remain weak in 2015-16, but a recovery in foreign investment would begin to support the non-mining sector growth.
- The fiscal outlook remains weak with the prospect of a slow revenue recovery.
- The balance of payments prospects remain weak and the economy is vulnerable to shocks.
- Meanwhile, substantial external downside risks lie ahead.
Policy Considerations
- Macroeconomic policy needs to stay focused on restoring sound economic management.
- Steps have been taken but further actions are needed.
- Fiscal consolidation should continue and high caution is needed for further external financing.
- Monetary policy should stay focused on maintaining price stability and reducing external vulnerability.
- Exchange rate flexibility needs to be enhanced.
- The safety buffers of the banking system need to be further strengthened.
- Better targeting of the social welfare programs would help strengthen the social safety net in an economic downturn.