IMF Executive Board Completes the First Review of the Extended Arrangement under the Extended Fund Facility for Georgia

December 6, 2017

  • The economic recovery is gaining momentum, inflation is projected to decline starting in early 2018, and the external position has strengthened.
  • The 2018 budget appropriately targets further fiscal consolidation.
  • Continued efforts to advance structural reforms are key to achieving higher and more inclusive growth.

On December 6, the Executive Board of the International Monetary Fund (IMF) completed the First Review of Georgia’s performance under the three-year extended arrangement under the Extended Fund Facility (EFF) on a lapse of time basis. [1] The completion of the review enables the release of SDR 30 million (about $42.4 million), bringing total disbursements under the arrangement to SDR 60 million (about $84.8 million). The extended arrangement for SDR 210.4 million (about $297.5 million or 100 percent of quota) was approved by the Executive Board on April 12, 2017 (see Press Release No. 17/130).

The program is on track with all end-June 2017 performance criteria and structural benchmarks met. Economic activity has strengthened on the back of stronger growth in main trading partners. Fiscal overperformance and efforts to address structural weaknesses have helped boost confidence.

Georgia’s economic performance has improved, but risks to the outlook remain. The economic recovery is gaining momentum, inflation is projected to decline starting in early 2018, and the external position has strengthened. Revenue overperformance provides room for additional capital spending and VAT repayments in 2017. The banking sector remains liquid, profitable, and well capitalized. Despite the positive outcomes, the authorities need to remain vigilant and sustain reform efforts to address structural obstacles to growth.

The 2018 budget appropriately targets further fiscal consolidation. The 2018 budget envisages a further decline in the deficit while allowing for an increase in capital spending. To achieve this, efforts to strengthen revenue administration should continue, especially to prevent the buildup of VAT claims. The authorities should also bolster efforts to further contain current spending, for instance, by containing the wage bill, improving the targeting of social programs, and reducing subsidies and equity injections to state-owned enterprises (SOEs).

Medium-term fiscal commitments should be completed as currently envisaged and require progressing with institutional fiscal reforms. Staff welcomes the authorities’ commitment to fiscal consolidation while accelerating high-priority infrastructure investment. A stronger framework for managing public investment will help improve efficiency on the use of public resources. The authorities’ commitment to comprehensively assess and monitor fiscal risks should be clearly reflected in the 2018 Fiscal Risk Statement. Efforts to improve the budgetary processes and fiscal reporting—for instance, by improving the coverage and measurement of fiscal aggregates to reflect activities of legal entities of public law (LEPLs) and SOEs, elaborating on compliance with fiscal rules, and strengthening macroeconomic and fiscal forecasting—will help improve fiscal transparency and accountability.

Monetary policy remains rightly focused on price stability, supported by the flexible exchange rate and efforts to strengthen the transmission mechanism. The NBG’s monetary policy stance is appropriate, but the authorities need to remain vigilant on monetary and financial developments, including related to credit growth. The inflation targeting framework, combined with the floating exchange rate regime, has served Georgia well. Foreign exchange intervention should remain limited to smoothing excessive exchange rate volatility and building reserves. The NBG’s steps to strengthen liquidity management, de-dollarize the economy, and improve communication will help strengthen the monetary framework.

The authorities’ steps to increase the resilience of the financial sector are welcome. Proposed legal amendments would appropriately expand the role of the central bank in regulating and supervising non-banks and credit bureaus, enhance the bank resolution framework, and supervise banks on a consolidated basis. The authorities’ efforts to identify legal amendments to adopt an effective emergency liquidity assistance (ELA) framework are also commendable.

Continued efforts to advance structural reforms are key to achieving higher and more inclusive growth. Upgrading infrastructure and strengthening trade integration will boost growth prospects. The new insolvency law for non-financial corporations and the Business House will help improve the business environment. The pension reform will increase the availability of domestic savings to support investment, as long as contributions are enforced. Improved capital market infrastructure, by facilitating mobilization of funds, will support capital accumulation. To further support growth, Georgia also critically needs to advance on education reform.


Table 1. Georgia: Selected Economic and Financial Indicators, 2015 – 18

2015

2016

2017

2018

Actual

EFF Request

Prel.

EFF Request

Proj.

National accounts and prices

(annual percentage change; unless otherwise indicated)

Real GDP

2.9

2.7

3.5

4.3

4.0

4.2

Nominal GDP (in billion of laris)

31.8

33.9

36.2

37.3

38.8

40.1

Nominal GDP (in billion of U.S. dollars)

14.0

14.3

13.7

15.0

14.9

16.3

GDP per capita (in thousand of U.S. dollars)

3.8

3.9

3.7

4.1

4.0

4.4

GDP deflator, period average

5.9

4.0

4.0

5.4

3.0

3.4

CPI, Period average

4.0

2.1

5.7

5.8

2.4

2.8

CPI, End-of-period

4.9

1.8

5.4

5.6

3.0

3.2

Investment and saving

(in percent of GDP)

Gross national saving

19.5

19.6

20.5

20.6

22.4

22.5

Investment

31.5

32.4

33.4

31.0

34.9

33.1

Public

5.6

5.1

5.8

5.8

6.4

6.5

Private

25.9

27.4

27.7

25.2

28.4

26.6

Consolidated government operations

(in percent of GDP)

Revenue and grants

28.1

28.4

29.3

28.9

28.6

28.6

o.w. Tax revenue

25.1

25.8

26.2

25.9

25.8

25.6

Expenditures

31.9

32.5

33.4

33.0

32.4

32.0

Current expenditures

24.9

26.0

25.3

24.7

24.3

24.0

Capital spending and budget lending

7.0

6.5

8.0

8.3

8.1

8.1

Overall balance

-3.8

-4.1

-4.1

-4.1

-3.8

-3.8

Net Lending/Borrowing (GFSM 2001)

-1.3

-1.6

-1.4

-1.1

-1.8

-1.5

Augmented Net lending / borrowing (Program definition) 1/

-2.7

-3.0

-3.7

-3.6

-3.5

-3.0

Public debt

41.4

44.6

45.5

42.3

46.7

42.7

o.w. NBG debt to the IMF

…

…

0.6

0.5

1.1

1.0

o.w. Foreign-currency denominated

32.5

35.2

35.9

33.1

37.3

34.0

Money and credit

(in percent; unless otherwise indicated)

Credit to the private sector (annual percentage change)

22.1

19.6

10.5

10.1

11.2

14.3

In constant exchange rate

4.3

12.0

12.0

15.5

11.2

14.3

Broad money (annual percentage change)

19.2

20.4

10.1

9.8

14.5

15.0

Broad money (incl. fx deposits, annual percentage change)

23.4

19.1

8.6

7.9

13.0

13.4

In constant exchange rate

5.1

13.3

11.3

14.7

14.6

15.0

Deposit dollarization (in percent of total)

66.8

69.9

69.0

64.8

68.1

64.1

Credit dollarization (in percent of total)

63.1

64.6

61.5

54.7

60.0

54.1

External sector

(in percent of GDP; unless otherwise indicated)

Current account balance

-12.0

-12.8

-12.9

-10.4

-12.5

-10.6

Trade balance

-28.1

-27.0

-44.4

-25.8

-40.3

-26.4

Terms of trade (ratio)

103.1

103.0

101.2

102.2

101.9

102.4

Gross international reserves (in billions of US$)

2.5

2.8

3.1

3.2

3.4

3.4

In percent of IMF Composite measure (floating)

83.5

86.6

92.5

93.3

96.3

95.2

Gross external debt

103.0

107.8

119.3

106.9

118.6

106.4

Gross external debt, excl. intercompany loans

86.2

89.5

91.7

87.4

90.4

86.5

Laris per U.S. dollar (period average) 2/

2.27

2.37

…

2.48

…

…

Laris per euro (period average) 2/

2.52

2.62

…

2.78

…

…

REER (period average; CPI based, 2010=100)

104.0

107.5

…

…

…

…

Sources: Georgian authorities; and Fund staff estimates

1/ Augmented Net lending / borrowing (Program definition) = Net lending / borrowing - Budget lending.

2/ For 2017 is average January - October.


[1] The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org