Reining in Risk to Enhance Financial Stability in Georgia

Challenge

Since 2014, Georgia has been forced to deal with large and persistent external challenges to its economic stability, including pressure on its currency as well as lower global oil and commodity prices, which have undercut how much revenue it can obtain from exports.

Approach

The National Bank of Georgia (NBG) has undertaken a number of reforms to deal with these challenges, making real progress in improving its operations and governance in recent years based on advice from the IMF and other central banks. In April 2015, Georgia began a collaborative project with the IMF to strengthen its central bank’s financial reporting and risk management work, focusing on several areas in which Georgia’s central bank could contribute to greater financial stability.

The team worked with the NBG initiate a stronger, more-clearly defined set of risk management policies in line with international standards and best practices, raise risk awareness throughout the organization, and finalize ongoing work on important tools for tracking and analyzing risks. Because risk management procedures rely on accurate and timely financial reporting, the authorities and the IMF team also developed an improved management information system and worked on ways to more effectively integrate strategic considerations into the NBG’s yearly budget process.

Impact

Strengthening the NBG’s internal organization set the tone for good governance of its entire financial sector. Because of the progress made on tackling these challenges, the NBG joined the International Operational Risk Working Group of more than 60 central banks worldwide that share best practices on risk management. The IMF also helped establish an ongoing dialogue between Georgia’s and the Netherlands’ central banks, so the NBG could network with and learn from an advanced European central banking system. These reform successes and collaborative efforts have not only strengthened the NBG’s stewardship of financial stability in Georgia, it has enhanced the NBG’s reputation as a governance role model for other central banks both in and outside of the region.