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

December 19, 2018

  • The authorities’ reform program supported by the Extended Fund Facility arrangement remains on track, reflecting prudent macro-financial policies and sound reform implementation.
  • Georgia’s economic performance remains strong, but downside risks to the outlook have increased.
  • Persevering with structural reforms is key to achieving higher and more inclusive growth.

On December 19, the Executive Board of the International Monetary Fund (IMF) completed the Third 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 will release SDR 30 million (about $41.6 million), bringing total disbursements under the arrangement to SDR 120 million (about $166.3 million).The extended arrangement for SDR 210.4 million (about $291.5 million or 100 percent of quota) was approved by the Executive Board on April 12, 2017 (see Press Release No. 17/130).

Program implementation through end-June 2018 was satisfactory. All end-June 2018 performance criteria were met—some with significant margin. All structural benchmark but one were observed, and the missed one was completed with a two-week delay.

Georgia’s economic performance remains strong, but downside risks to the outlook have increased. Inflation has stayed below the 3-percent inflation target in 2018, and the external position has strengthened. Higher revenues and lower investment resulted in a fiscal surplus through September 2018. Against the background of high credit growth, the authorities introduced regulations to limit household over-indebtedness. The banking sector remains well capitalized, liquid, and profitable, but dollarization remains high. Despite the positive outturns, the authorities need to remain vigilant to a deteriorating external outlook and to sustain reform efforts to promote more inclusive growth.

The agreed 2019 deficit appropriately targets a broadly neutral fiscal stance, while allowing for accelerating capital and social spending. Medium-term fiscal commitments, including those related to a comprehensive education reform, should be consistent with fiscal sustainability and supported by institutional fiscal reforms.

The inflation-targeting framework, combined with the floating exchange rate regime, continues to serve Georgia well. The current monetary policy stance remains appropriate. Efforts to build international reserves need to be stepped up given heightened external uncertainty and Georgia’s vulnerability to external shocks. Regulations to increase financial resilience are welcome but its impact on credit growth needs to be closely monitored.

Persevering with structural reforms is key to achieving higher and more inclusive growth. Priorities include adopting a new corporate insolvency law and a well-designed and comprehensive education reform.


 

Georgia: Selected Economic and Financial Indicators, 2015-2019

2015

2016

2017

2018

2018

2019

Actual

Preliminary

Country Report 18/198 1/

Projections

National accounts and prices

(annual percentage change; unless otherwise indicated)

Real GDP

2.9

2.8

5.0

4.8

5.0

4.6

Nominal GDP (in billion of laris)

31.8

34.0

38.0

41.4

41.6

45.0

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

14.0

14.4

15.2

16.9

16.5

17.2

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

3.8

3.9

4.1

4.5

4.4

4.6

GDP deflator, period average

5.9

4.2

6.5

3.8

4.2

3.4

CPI, Period average

4.0

2.1

6.0

2.8

2.8

3.1

CPI, End-of-period

4.9

1.8

6.7

2.7

2.3

3.0

Investment and saving

(in percent of GDP)

Gross national saving

18.9

19.6

23.1

25.5

25.5

25.4

Investment

31.5

32.7

31.9

34.7

34.5

34.9

Public

5.6

5.0

6.1

6.8

6.6

7.1

Private

25.9

27.7

25.8

27.9

27.9

27.9

Consolidated government operations

(in percent of GDP)

Revenue and grants

28.1

28.3

29.0

27.9

27.9

28.0

o.w. Tax revenue

25.1

25.7

26.0

25.0

25.0

25.1

Expenditures

32.0

32.5

32.7

31.1

30.8

30.9

Current expenditures

25.0

26.0

24.2

23.1

23.0

23.1

Capital spending and budget lending

7.0

6.5

8.5

7.9

7.8

7.8

Net Lending/Borrowing (GFSM 2001)

-1.2

-1.5

-0.5

-1.6

-1.2

-1.9

Augmented Net lending / borrowing (Program definition)2/

-2.6

-2.9

-2.9

-2.8

-2.3

-2.6

Public debt

41.4

44.4

44.9

42.8

43.4

43.5

o.w. NBG debt to the IMF

…

…

0.6

0.5

0.5

1.0

o.w. Foreign-currency denominated

32.5

35.1

35.6

33.2

34.1

33.8

Money and credit

(in percent; unless otherwise indicated)

Credit to the private sector (annual percentage change)

22.1

19.6

17.6

14.1

17.6

12.6

In constant exchange rate

4.1

11.9

19.4

18.0

16.3

13.1

Broad money (annual percentage change)

19.2

20.4

14.8

12.6

13.6

12.2

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

23.4

19.1

13.7

10.5

12.6

10.8

In constant exchange rate

5.3

13.4

16.5

16.2

12.5

12.8

Deposit dollarization (in percent of total)

66.8

69.9

63.7

59.7

62.2

59.6

Credit dollarization (in percent of total)

63.1

64.6

56.1

50.7

53.7

51.3

Credit to GDP

49.2

54.9

57.8

60.6

62.1

64.6

External sector

(in percent of GDP; unless otherwise indicated)

Current account balance

-12.6

-13.1

-8.8

-9.2

-9.0

-9.5

Trade balance

-28.1

-26.9

-25.0

-27.2

-26.2

-27.4

Terms of trade (percent change)

30.6

-1.2

-2.7

-1.9

-4.9

-0.9

Gross international reserves (in billions of US$)

2.5

2.8

3.0

3.3

3.2

3.5

In percent of IMF Composite measure (floating)

90.0

90.6

89.9

93.3

92.3

95.6

Gross external debt

107.6

109.3

113.2

107.9

108.9

113.3

Gross external debt, excl. intercompany loans

86.1

91.8

95.9

90.9

91.5

95.0

Laris per U.S. dollar (period average)

2.27

2.37

2.51

…

…

…

Laris per euro (period average)

2.52

2.62

2.83

…

…

…

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

104.0

107.5

105.2

…

…

…

Sources: Georgian authorities; and Fund staff estimates.

1/ Please refer to this link for details https://www.imf.org/en/Publications/CR/Issues/2018/06/28/Georgia-2018-Article-IV-Consultation-Second-Review-under-the-Extended-Fund-Facility-46036

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


[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.

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