The government has implemented a fiscal consolidation plan which has led to a primary surplus for the first time since 2008, and to a decline in the public debt‑to‑GDP ratio. Fiscal consolidation is projected to continue, albeit at a slower pace, which will allow for a mild recovery in public investment. While satisfying public investment and social spending needs, fiscal discipline should continue to lower the public debt‑to‑GDP ratio. There is room to increase tax revenue by reducing tax exemptions, notably on VAT and income taxes. In addition, revenue could be enhanced by improving tax collection, raising property and green taxes, and introducing an inheritance tax. Higher taxes revenues from these sources could also allow a cut to the corporate income tax rate, which is amongst the highest in the OECD, thus moving to a more growth‑friendly tax mix. Coordinating the collection of income taxes and social security contributions would reduce tax evasion.
Heightened uncertainty is delaying private investment and the effects of recent structural reforms from materialising fully. Given the current path of inflation and barring any additional shocks, and while staying vigilant regarding inflation path, inflation determinants and expectations, monetary policy should have room to reduce its high policy rate, thus contributing to more favourable credit and investment conditions.
Although some recent structural reforms, such as those in the telecommunication sector, are already contributing to growth, accelerating implementation across the country in key areas, such as judicial reform, is crucial to reap the full benefits. Raising women’s participation in the labour market, improving access to good quality education, reducing informality and alleviating poverty are key to lift employment and productivity growth as well as well‑being.
