A broad-based recovery lifted growth to 6.7% in 2010, improving financial sector stability and reducing the fiscal deficit. But monetary tightening to tackle an inflation overshoot, budget cuts needed to avoid an excessive build-up of debt and uncertainty over election plans will force a slowdown to about 5.5% this year. And lower inward investment means that sustainable growth is now well below pre-2008 rates. Inflation quickened to 13.7% in February, and higher imported fuel and food prices combined with periodic currency weakness could send it higher in Q2, with an end-year rate still around 8%. The resort to increased consumer subsidies, provoking rumours of an early election, could add to short-term inflation pressure and make it harder to attain the target fiscal deficit reduction to 4% of GDP, without which the needed 2011-14 debt rollovers will be difficult to achieve without renewed IMF help. President Saakashvili has re-affirmed strong US economic and political support, boosting hope of an FDI recovery (from US$550m last year) that would underpin ambitious plans for industrial and agricultural growth and energy self-sufficiency. But close NATO orientation and worsening disorder in the North Caucasus mean ongoing risk of renewed friction with Russia, posing a threat to the revival of investor confidence and tourist arrivals. Fiscal adjustment to keep debt sustainable will be hard to deliver without interrupting the drive for lower tax, which the government admits is vital to attracting investment given geographical isolation and small market size. Action against bureaucracy and corruption continue to improve the business environment, but this could be offset in 2011-12 by continued lack of effective opposition to the present government, and its closeness to large business groups.