A recovery has taken root, led by the upturn in the US manufacturing sector. With the external environment expected to remain strong, investor confidence should improve and output growth could accelerate to above 4 per cent in 2005. Employment creation in the formal sector is lagging, but headline inflation has turned up, reflecting mostly erratic factors. Faced with rising inflation expectations in early 2004, the tightening of the monetary policy stance was appropriate. On the fiscal front, the 2003 budget target was easily met, thanks to higher-than-projected oil revenues, and the 2004 budget maintains a firm stance. The public sector borrowing requirement is projected to come down to 2 per cent of GDP by 2005. A strong tax package is required to put public finances on a sounder footing and boost investor confidence...