Overall expenditure in 2011 is almost identical to the 2010 budget, producing a slight reduction in real terms. However, the government will struggle to contain recurrent expenditure in advance of the presidential election scheduled for late 2011. The government has already offered electricity and food subsidies, as well as a massive recruitment drive in the civil service to placate unemployed youth. However, a portion of new spending commitments will be unpaid in the current fiscal year as the government pays arrears from previous years and accumulates new unsettled payment obligations. After the presidential election is held, the government is expected to sign a new agreement with the IMF and to start tackling the budget deficit by reducing expenditure.

Despite falling production, oil revenue will increase in 2011 as prices remain strong, although oil revenue will stagnate in 2012-despite increased production and the depreciation of the CFA franc against the dollar-as the oil price falls by nearly 16%. Non-oil revenue, although behind target, is forecast to continue to rise on the back of increased investment in sectors such as telecommunications, timber, mining, gas and construction. However, budgeted increases in the tax base from the informal sector are unlikely to be strictly enforced in the run-up to the presidential election, which will lead to heavier taxation of larger businesses. In view of these trends, we forecast that the fiscal deficit will narrow to 1.7% of GDP in 2011 and to near-balance in 2012. The deficit will be largely financed through domestic borrowing.