Aided by indirect tax increases, low global and domestic interest rates, and the positive impact of the economic recovery on tax receipts, the budget deficit is estimated to have fallen from 5.5% of GDP in 2009 to about 3-3.5% in 2010. Owing to the forecast moderate slowdown in economic activity and some election spending, we expect the deficit to remain around the same level in 2011 as a deterioration of the primary balance, excluding interest payments, is expected to offset the continued positive impact of low interest rates on the government's debt-servicing costs. Solid economic growth and declining interest payments as a percentage of GDP should ensure that the deficit will continue to narrow gradually, falling to about 2-2.5% of GDP by 2015.

As a result of the large fiscal deficit in 2009, the central government debt/GDP ratio rose to 46.3%, compared with about 40% in 2007-08. However, it is estimated to have fallen slightly in 2010 as a result of the smaller deficit and solid GDP growth. Given our deficit and growth forecasts for 2011-15 we expect the downward trend to continue, with the debt/GDP ratio falling to below 40% by end-2015.