"The economic recovery is accelerating with strong growth in tourism, construction, finance, and services. Foreign investment is growing rapidly in response to the reform efforts, notably those which have improved the business environment and lowered tax rates. Real economic growth is projected to rise to about 7 percent in 2007/08. Unemployment has been moderating, but inflation remains a concern. Fiscal policy has been tightened as revenues have risen in response to tax reforms and expenditure has been contained. The external current account deficit has widened somewhat on strong foreign investment-stimulated import growth. The institutional framework for monetary policy has been revised to strengthen the focus on reducing inflation. Increased efficiency in the management of public funds is needed to support monetary policy in the face of large capital inflows.
"The challenge is to sustain the reform effort to improve competitiveness and address bottlenecks to economic growth. The budget deficit needs to be reduced further over the medium term to lower public debt and counterbalance the impact of strong foreign capital inflows on aggregate demand. Efforts to improve the effectiveness of social assistance and expand the tax base should be continued to create the fiscal space needed for education and the retraining of the labor force as well as to raise investment spending on much needed infrastructure. Structural reforms, including those to improve labor market flexibility, stimulate greater competition in goods markets, and lower costs of doing business need to be carried forward to improve the supply response to the foreign investment stimulus. Efforts to protect vulnerable groups and ensure that the benefits of economic recovery are widely distributed are also vital.
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