In the 2011 budget, presented to the National Assembly in November, the minister of finance, Mr Jugnauth, said that the government remained committed to the high levels of spending and investment that it had promised after the May election and set out in the ERCP. He announced a number of tax increases to support this level of spending, although some unpopular taxes were dropped. Based on an assumption of 4.2% real GDP growth in 2011, revenue is projected to grow by 11.7%, with tax revenue, which accounts for 85% of total revenue, growing slightly more quickly. Current expenditure is projected to increase by 7% to MRs72.6bn (US$2.3bn) and capital expenditure by 36% to MRs11.4bn, raising overall projected expenditure by 10.2%. The budget projects a fiscal deficit of 4.3% of GDP in 2011. The Economist Intelligence Unit, with a lower assumption of real GDP growth in 2011 (3.7%) than in Mr Jugnauth's budget, forecasts lower overall revenue in 2011. However, we expect the government to trim its expenditure in 2011 (to match its weaker revenue and to reduce the fiscal deficit, if only slightly), and forecast a deficit of 4.6% of GDP.

The situation will be similar in 2012, for which the Ministry of Finance and Economic Development assumes real GDP growth of 4.3%, whereas we forecast 3.9% growth. However, as we forecast a sharper upturn in real GDP growth in 2012 than does the government, we expect a higher growth rate for revenue and expenditure. We forecast a fiscal deficit of 4.5% of GDP in 2012, fractionally lower than the previous year but still above the government's projection of 4.1%. The deficits will be financed by a balance of domestic and external borrowing, and we expect public debt to rise steadily from an estimated 63% of GDP in 2010 to 66% of GDP by the end of 2012.