Aided by indirect tax increases, low global and domestic interest rates and the positive impact of the economic recovery on tax receipts, the deficit in the central government budget, which covers most of the public sector, fell from 5.5% of GDP in 2009 to an estimated 3.6% in 2010. Because of the forecast slowdown in economic activity, we expect the deficit to decline more gradually during the forecast period, to 2% by 2015. An improvement is expected in 2011, despite some election spending. We believe that a substantial portion of the large deficit recorded in December 2010 was actually the result of cash distributed for use this year. The deficit reduction will also be helped by lower interest payments as a percentage of GDP owing to the sharp fall in yields on government securities compared with the period up to the 2008-09 crisis.

The central government debt/GDP ratio rose by about 6 percentage points to 46.3% in 2009 as a result of the severe recession. However, as a result of the smaller deficit and strong GDP growth, it fell to an estimated 43.5% of GDP in 2010. Given our deficit and growth forecasts for 2011-15 and our expectation that privatisation activity will pick up, we expect the downward trend to continue, with the debt/GDP ratio falling to below 40% by 2013-15.