Press Release No. 17/68

IMF Reaches Staff-level Agreement with Georgia on a three year US$285 million Extended Fund Facility

March 1, 2017

• The request is subject to approval by the IMF Executive Board, which is expected to consider it in April 2017.

• The authorities’ program would help Georgia achieve strong and more inclusive growth, preserve fiscal sustainability, reduce external vulnerabilities, strengthen monetary and fiscal institutions, and improve financial and social safety nets.

• EFF supports the authorities’ comprehensive economic reform program.

At the request of the Georgian authorities, a team from the International Monetary Fund (IMF), led by Ms. Mercedes Vera Martin, visited Tbilisi from February 15 to March 1, 2017, to discuss a three-year economic program that could be supported by the IMF under an Extended Fund Facility (EFF) arrangement.

At the conclusion of the mission, Ms. Vera Martin issued the following statement:

“I am pleased to announce that the IMF team reached a staff-level agreement with the Georgian authorities – a three-year Extended Fund Facility (EFF) in the amount of SDR201.4 million (about $285 million) or 100 percent of Georgia’s quota. The agreement is subject to approval by the IMF’s Executive Board, which is expected to consider Georgia’s request in April.

“Georgia’s economy has remained resilient despite the external shock starting at end-2014. Economic growth has averaged 2.8 percent in 2015-16, the highest among Georgia’s main trading partners (excluding China), and inflation has remained low. Economic growth over the medium term is expected to pick up supported by policies under the authorities’ program to proceed swiftly with their reform agenda. The continued implementation of structural reforms will create favorable conditions for private investment, productivity growth and improved export competitiveness.

“The authorities’ agreed economic program aims at preserving macroeconomic and financial stability and addressing structural weaknesses in the economy to support higher and inclusive growth. To achieve these objectives, the authorities plan to take measures to preserve macroeconomic stability and initiate ambitious reforms.

“Fiscal consolidation over the medium term will focus on creating room for public investment and social spending while preserving debt sustainability. The 2017 Budget, including strong fiscal measures, will help reach this objective. The authorities will also adopt important fiscal reforms to ensure that budget discipline is maintained, building on the existing framework for fiscal responsibility. The team and the authorities agreed on the importance of strengthening public financial management; improving control and disclosure of fiscal risks; and continuing to strengthen tax administration.

“Monetary policy will remain appropriately focused on price stability. Inflation is projected to exceed the central bank’s target in 2017, due to increases in world commodity prices, excises and the lagged effect of currency depreciation. The announced monetary policy is appropriate as one-off effects dissipate and inflation converges to the target in 2018. The inflation targeting framework, combined with the floating exchange rate regime, has served Georgia well. The exchange rate will continue to move flexibly, with interventions limited to smoothing excessive volatility and preventing disorderly market conditions. Staff welcomes steps taken to improve lari liquidity facilities and broaden the eligible collateral pool to provide confidence in the National Bank of Georgia’s (NBG) liquidity management framework.

“Plans to strengthen banking regulation and supervision, financial safety nets and the bank resolution framework would increase the resilience of the financial sector to shocks and ensure that the financial sector can support sustainable and inclusive economic growth. Measures to promote dedollarization will help strengthen the resilience of the financial sector. Prudential regulation will help better account for systemic and liquidity risks; and the NBG, together with the government, is committed to introduce deposit insurance. Efforts are also needed to enhance the resolution framework and emergency liquidity assistance.

“The authorities’ Four Point Reform Plan appropriately centers on policies to generate higher sustainable economic growth. The ambitious structural reform agenda focuses on improving education; investing in roads infrastructure to leverage Georgia’s position to become a transit and tourism hub; making the public administration more efficient; and improving the business environment to boost the private sector role as a growth engine.

“During the visit, the team met with President Mr. Margvelashvili, and held discussions with Prime Minister Mr. Kvirikashvili, Minister of Finance Mr. Kumsishvili, Minister of Economy Mr. Gakharia, Governor of the National Bank of Georgia Mr. Gvenetadze and other senior government officials, as well as with representatives of Georgia’s international development partners, civil society, and the banking and business communities.

“The IMF team would like to thank the government, the National Bank of Georgia, development partners and private sector representatives for the open and constructive discussions and collaboration bringing us to today’s successful conclusion.”