Asia Regional Integration Center

Growth slowed dramatically to 3.1% in 2017 as bad weather shrank output from agriculture for a second year. Weaker growth in industry and services contributed to the slowdown. The ratio of revenue to GDP continued to improve as fiscal consolidation aligned with the government’s economic program, supported by the International Monetary Fund (IMF), to reduce fiscal and external vulnerabilities. Monetary tightening brought growth in credit to the private sector to a more sustainable rate of 14.7%, following 21.9% expansion in 2016.

Growth over the next 2 years will depend on agriculture and the political climate as elections approach. Assuming normal weather in 2018 and 2019, agriculture is expected to rebound to 6.0% growth in 2018 and recover fully in 2019, expanding by 5.6%. The outlook has downside risks. Weather is an obvious concern. With local government elections in February 2018 having dealt the ruling coalition an unexpected setback, political uncertainty could damage investor confidence and undermine the reform agenda. An unexpectedly large rise in global interest rates or volatility in capital markets could sharply limit planned borrowing and increase its cost.