The state budget recorded a deficit of 1.5% of GDP 2009, following a surplus of 0.8% of GDP in 2008. The budget deficit for 2010 is estimated at 6.2% of GDP. Revenue suffered from the social unrest in mid-year as retail trade underwent a sharp downturn. Value-added tax (VAT) revenue will also have suffered from the population's relatively low purchasing power. The provisional authorities' decision to reverse steep tariff rises for electricity and to waive some newly introduced energy taxes also had an impact on budget revenue in 2010 (although electricity tariffs have since risen slightly). The new government will be reluctant to resort to excessive tariff increases to address any revenue shortfall, as the imposition of large electricity price increases in January 2010 contributed significantly to the unrest that led to Mr Bakiyev's ouster.

Emergency assistance from Russia, the EU and other multilateral lenders enabled the authorities to fulfil their spending obligations despite the downturn in revenue in 2010, and foreign assistance will continue to be forthcoming over the forecast period. External assistance and a return to economic growth will reduce pressure on the government to provide financial support to the real economy. However, spending pressures will remain high. For example, the authorities have authorised the payment of compensation to the families of the victims of the violence that occurred in April-June 2010. The new government has agreed an expansionary budget for 2011, with social spending remaining high and significant resources directed to reconstruction efforts following the unrest in 2010. We therefore forecast that the deficit will widen to 8.3% of GDP in 2011, remaining at around this level in 2012.