The International Monetary Fund (IMF) issued a press release today, Wednesday 9 October on the conclusion of the First Post-Program Monitoring Discussion. It says the country’s outlook is for a gradual economic recovery with moderate inflation and a strengthening external position after a slow start of the year, with rising inflation reflecting effects of the November 2012 fiscal reform.
In the release, the IMF acknowledges the second semester of the Medina administration started in a context of “fiscal contraction and weak confidence.” It reports that real growth in the first half of 2013, after growing by almost 4% in 2012 and by 4.5% in 2011, was 1.6% (year-on-year). Inflation rose in early 2013, too, reflecting the impact of increases in the value-added tax (ITBIS) rates announced in the fiscal reform in November 2012. By July 2013, headline inflation was 4.7%, while the Central Bank’s target was 4 to 6%.
After the slow growth the government kick-started the economy when the Central Bank eased monetary policy to boost credit growth. The IMF says that as of end-July, bank credit to the private sector had grown 14%. It explains that the easing of reserve requirements in May 2013 was a key factor in the pickup in credit.
Nevertheless, it focuses on how foreign exchange market pressures intensified in August when the peso depreciated by close to 2% during the month. It says that in order to counteract the situation, the Central Bank had approved a 200-basis point increase in the monetary policy rate to 6.25% and that as of end-August gross international reserves stood at 3.7%.
The IMF reports that government spending slowed sharply in the first half of 2013 after a large expansion in the previous electoral year. It says that as a result, the nonfinancial public sector deficit narrowed to 1.1% of GDP in the first half of 2013, down from 6.7% of GDP in 2012 as a whole.
www.imf.org/external/np/sec/pr/2013/pr13396.htm