During the year the authorities adopted a number of revenue measures that substantially lowered the revenue ratio. As a result of these measures and higher inflation, real interest rates on loans fell to historically low levels, but credit to the economy began to expand only later in the year, reflecting probably both still weak demand and banks' increased caution in lending. The outlook for 2001 is encouraging. With exports and private consumption likely to experience a modest deceleration, this expectation hinges crucially on a revival of private investment after three years of contraction. This expectation could, however, prove optimistic if economic growth in Europe were to slow substantially or if oil prices failed to decline as envisaged.
Inflationary pressures are likely to subside.
Executive Board Assessment Executive Directors welcomed the progress achieved by the new government in restoring control over the public finances and its adoption of a comprehensive economic program for 2001-2003. Directors agreed that this program, with its focus on the fiscal deficit and tax reductions, wage discipline, and structural reforms in the context of a stable exchange rate, offers the best prospects for achieving sustainable economic growth and external viability, while increasing employment and the population's standard of living in the medium term. After an auspicious beginning, and with a recovering economy and a strengthened financial system, it is now important for the authorities to implement their program in a steadfast manner. Directors agreed that a further reduction of the fiscal deficit and of the size of government is needed to improve economic efficiency and promote sustainable growth. The one-off nature of privatization receipts and the impending introduction of the second pension pillar add to the urgency of the adjustment effort, which should be completed over the next few years so as to avoid renewed increases in the public debt ratio.