News Brief No. 01/106

News Brief: IMF Approves US$11 Million Disbursement to Georgia Under PRGF Loan

October 26, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Georgia's economic performance under the program supported by a three-year Poverty Reduction and Growth Facility (PRGF)¹ arrangement. The completion of the review will enable Georgia to draw SDR 9 million (about US$11 million) from the IMF.

Georgia's arrangement under the PRGF was approved on January 12, 2001, for SDR 108 million (about US$137 million-see Press Release 01/4). So far, Georgia has drawn SDR 18 million (about US$23 million).

Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"The Georgian authorities have made progress this year in implementing their three-year economic program, which seeks to lay the foundation for faster growth and poverty reduction, while addressing the problem of high external debt. Inflation has been low and the floating exchange rate broadly stable over the last two years, reflecting continued prudent monetary policy. The budget deficit has been reduced significantly and the accumulation of expenditure arrears has been halted. Georgia's external debt to Paris Club creditors has been rescheduled, and GDP growth has increased, although it remains too low to significantly reduce the high level of poverty in Georgia.

"The authorities' macroeconomic program provides a coherent framework for maintaining economic stability and strengthening growth. Tax revenue collection has improved since April 2001, following shortfalls early in the year. The draft budget for 2002 signals the authorities' intention to continue to strengthen revenue mobilization and reduce the budget deficit. In view of the heightened uncertainty in the external environment, close monitoring of macroeconomic policies will be needed in the period ahead.

"Recent reforms in the fiscal and financial sectors, if implemented with determination, will be helpful in strengthening governance and transparency in areas critical to macroeconomic stability, notably revenue mobilization. Measures that have been implemented to strengthen banking supervision should help to address significant vulnerabilities in the banking sector. However, it is essential to make faster progress in fighting corruption, to improve the business climate and help attract foreign direct investment, which is needed to underpin faster growth over the medium term. There is also an urgent need to address problems in the energy sector.

"Georgia's medium-term outlook is constrained by high external debt and low fiscal revenues. While the recent Paris Club agreement has substantially reduced external debt service requirements for 2001 and 2002, Georgia will continue to rely on concessional external financing. The most essential need, however, is for sustained domestic policy efforts. In particular, the low level of fiscal revenues is constraining not only Georgia's debt service capacity, but also important social expenditures. Sustained fiscal adjustment focused on raising revenues, alongside growth-oriented structural reforms, will be necessary to achieve sustainability in public finances and in the external position, and for achieving a reduction in poverty," Mr. Sugisaki said.

¹On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was replaced by the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5½ year grace period on principal payments.