2005 Budget Amendments Approved

The Parliament voted in favor of adopting new budget amendments on March 25. The changes will increase budget revenues and expenditures to USD20.5 bn and USD21.8 bn, respectively, and reduce the deficit of USD to 1.3 bn (1.5% of GDP). The government also plans to borrow USD1.6 bn in 2005. The amendments also provide a 26.7% and 12.5% increase in the minimum wage and pensions, and a 57% hike in wages for employees of state-owned enterprises. A substantial increase (4-12 times) for other social benefits is also planned. Concorde Capital: The government introduced the amendment to increase social expenditures and demonstrate its ability to find necessary financial resources. The amendments canceled all preferential benefits for free economic zones and some industries, including the automotive and aircraft sectors. However, these measures may re-allocate funds to the general population at the expense of capital investments. This could potentially increase inflation, and have a negative effect on GDP (8.2%) and industry (12.0%) growth rates for this year. More importantly, the changes could undermine mid-term growth sustainability. We maintain our annual GDP forecast at 7%, industrial output estimate of 9.5% and CPI projection of 11%.