Output growth and inflation performance in 1999 have both been better than expected. At the same time, the reduction in domestic demand lowered tax revenues, which led to a widening of the fiscal deficit. The authorities are encouraged to seek further reductions in the fiscal deficit as the recovery of the tax base becomes more firmly established and tax administration continues to improve. The new law on fiscal responsibility sends a positive signal of the authorities' commitment to continued fiscal prudence over the medium term. The strategy for the banking sector combines prompt corrective action through the close surveillance of banks by the banking superintendency with emphasis placed on encouraging market-based solutions to continue strengthening the banking system.
Some bank mergers point to positive results of the strategy.
However, as the expected recovery in the quality of bank loans does not appear to have materialized yet, it is very important to remain vigilant in monitoring banks' performance closely. The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems.