February 10, 1999
1. An IMF mission in January 1999 reached agreement with the Georgian authorities on many aspects of an economic program for 1999. The mission supported the courageous decision of the authorities to halt intervention to support the lari in December 1998, and the increase in the gross international reserves of the National Bank of Georgia (NBG).
2. However, the IMF staff are concerned that control over Georgia's fiscal situation remains weak, in several respects. First, the draft 1999 budget which the Government of Georgia has submitted to Parliament departs from the understandings reached with the January 1999 mission. Second, government expenditure increased dramatically in December, increasing the amount of lari in circulation by one quarter during the month. However, a major reduction in government expenditure arrears did not result from increased expenditure during December. Third, central government tax revenue during January 1999 was disappointing, and fell below the level of January 1998, indicating that Tax Code amendments enacted during late 1998 have not yet taken hold. Fourth, cigarette revenue also fell below targets, although excise stamps did go on sale in February 1999. Finally, despite US$60 million in disbursements from foreign sources at the end of 1998, three foreign debt service payments to institutions which provide substantial assistance to Georgia were paid with a delay during December and January, undermining Georgia's reputation with international creditors.
3. The weak fiscal situation has already led to a depreciation of the lari-U.S. dollar exchange rate, and contributed to inflationary pressures. Improvement in the fiscal situation and restraint in NBG credit to government would provide support the exchange rate and avoid further inflationary pressures.
4. The IMF stands ready to support the Georgian authorities' efforts to help themselves, based upon firm implementation of a strong economic program, with tangible results in the form of increased tax revenue.
Hunter Monroe
IMF Resident Representative
Tbilisi, Georgia