Press Release No. 14/541

Press Release: Statement by IMF Mission to Georgia

November 26, 2014

An International Monetary Fund (IMF) mission visited Tbilisi from October 15 to 28, 2014 to conduct discussions on the first review of Georgia’s economic performance under the Stand-By Arrangement (SBA). The 36-month SBA with a total access of SDR100 million (about US$154 million) was approved by the IMF’s Executive Board on July 30, 2014 (see Press Release No. 14/377).

On November 26, 2014, Mark Griffiths, IMF Mission Chief for Georgia, issued the following press statement:

“Following our discussions last month with the Georgian authorities, we have reached agreement at staff level on the main elements of the government’s and the National Bank of Georgia’s economic policy program. In particular, as demonstrated by the draft budget being submitted to Parliament, the government has made a strong commitment to limiting next year’s budget deficit to no more than 3 percent of GDP. The authorities are also committed to introducing structural reforms to accelerate growth and to make it more inclusive, while aiming to further strengthen their successful monetary policy of inflation targeting and a flexible exchange rate, and to maintain strong foreign currency reserves.

“On the basis of these commitments, the Fund mission is prepared to recommend going forward with the first review of the program. Subject to the approval by IMF management, the IMF Executive Board meeting to discuss the review could take place in December.

“Georgia’s Fund-supported program continues to perform well. Growth this year should reach 5 percent as the economy recovers from the slowdown in 2013, supported by stronger consumption, private investment, and exports. The economic impact of geopolitical tensions has been contained so far, given Georgia’s growing (but still limited) trade links with Russia and increasing remittances from Southern Europe. All of the program’s quantitative targets for end-September were met. The authorities have delayed the preparation of the access to finance study (end-September benchmark) to include inputs from the Word Bank and the KfW. A more comprehensive study will be completed in 2015.

“Growth in 2015 is projected to reach again 5 percent. This forecast is subject to risks, mainly on the downside. Escalation of regional tensions or further disappointment over the strength of the Euro area recovery could weaken foreign investment and trade. But there is upside potential too. The recent decline in oil prices, if sustained, should lead to higher growth and a lower current account deficit.

“Inflation remains below the National Bank of Georgia’s (NBG) 6 percent target. Although food prices this year have increased, the strength of the Lari and the fall in international commodity prices should keep inflation low. The mission thus considers that the monetary policy stance is appropriate. Inflation should end 2014 slightly below 4 percent, and approach 5 percent by the end of 2015. The mission is encouraged by the NBG’s plans to publish quarterly inflation reports according to a pre-announced schedule and to hold regular press conferences starting in 2015.

“The mission expects that this year’s budget deficit will be slightly below the program’s 3.7 percent of GDP limit. Tax revenues have exceeded program projections. Overall spending has been broadly in line with expectations, but its composition has shifted from capital to current expenditure, pointing to the need to strengthen project appraisal and procurement.

“The 3 percent of GDP deficit in the 2015 draft budget confirms the Georgian government’s commitment to the program. The program aims to lower the deficit down to about 2½ percent of GDP by 2017, to keep the government’s debt-to-GDP ratio on a downward path and to facilitate external adjustment.

“Georgia’s high current account deficit and external debt remain sources of vulnerability to the economy. After increasing this year, the current account deficit is projected to decline starting 2015, supported by fiscal consolidation, greater exchange rate flexibility, reforms to improve competitiveness, and opportunities provided by the free trade agreement with the EU. The authorities will continue allowing the lari to float in line with market forces to preserve competitiveness and to strengthen the economy’s ability to withstand external shocks.

“The mission would like to thank the government, the NBG, development partners, and private sector representatives it met during its visit for open and constructive dialogue.”