In the 2011 budget, presented to the National Assembly last November, the finance minister, 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. With a slightly higher assumption of real GDP growth in 2011 (4.4%) than in Mr Jugnauth's budget, the Economist Intelligence Unit forecasts higher overall revenue in 2011 and a deficit of 4.2% of GDP.

The situation will reverse in 2012, when the Ministry of Finance and Economic Development assumes real GDP growth of 4.3%, whereas we forecast 4% growth. We therefore forecast revenue growth of around 5% in 2012, compared with the government's projection of 6.6%, and a fiscal deficit of 4.4% of GDP, compared with the government's projection of 4.1% of GDP. The deficits will be financed by a balance of domestic and external borrowing, and we expect public debt to rise from an estimated 58% of GDP in 2010 to 62% of GDP by the end of 2012.