Summary: KEY ISSUES Outlook and risks: Growth is projected to reach 2.4 percent in 2014, while core inflation remains close to the target. Strong export demand has boosted manufacturing production and employment, and construction activity is starting to recover, supported by an expansion of public infrastructure spending. The main external risk is a rise in capital flow volatility caused by uncertainties related to the unwinding of the U.S. monetary policy stimulus or heightened geopolitical tensions. The main domestic risk is the effectiveness of implementation of the structural reforms. Structural Reforms: Major reforms in the areas of energy, education, anti-trust, telecommunications, and the financial sector have been approved in the past year and a half. The legislative process for the energy and telecommunications reforms has been completed recently, clearing the way for implementation. Staff estimates suggest that the reforms will boost potential output growth by ¾ percentage points to 3½–4 percent per year. Macroeconomic Policies: The current policy mix of easy monetary policy and broadly neutral fiscal policy has helped the recovery this year. The authorities plan to reduce the fiscal deficit gradually in the medium term, with the goal of setting public debt on a downward path. A steady and transparent implementation of the structural reforms will be critical to maintain investors’ confidence and boost potential growth in the medium term. Advice from previous Article IV Consultations: The ambitious structural reforms are consistent with Fund advice from previous consultations. A number of key recommendations in the 2011 FSAP Update have been implemented, including strengthening of consolidated supervision.

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