Press Release: IMF Executive Board Completes First Review Under Georgia's PRGF Arrangement and Approves US$21.5 Million Disbursement
December 21, 2004
The Executive Board of the International Monetary Fund (IMF) has completed the first review of Georgia's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. In doing so, the Board approved a request for a waiver for the non-observance of the structural performance criteria with respect to the issuance of a strategy paper to deal with internal electricity sector legacy debt.
The IMF's Executive Board approved the three-year arrangement on June 4, 2004 (see Press Release No. 04/107) for an amount equivalent to SDR 98 million (about US$150.3 million). Completion of the first review will bring total disbursements under the arrangement to SDR 28 million (about US$42.9 million).
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"Economic performance under the Fund-supported program has been impressive in 2004, with robust growth and subdued inflation. Rapid gains in tax collections-thanks to an anti-corruption drive and improved revenue administration-have permitted an impressive turnaround in the fiscal position and a significantly faster-than-expected clearance of domestic arrears. The new government has received strong international support, and last July, Paris Club creditors restructured Georgia's debt in arrears and maturities due through December 2006 on extended Houston terms. The improvement in economic fundamentals has brought down risk premia on government securities and mitigated dollarization.
"The government has also made good progress in structural reforms, albeit with delays. It has strengthened the physical and financial viability of the energy sector, though further efforts will be needed to ensure reliable power supplies and reduce energy sector quasi-fiscal losses. As a first step toward creating a professional civil service, the government has reduced public employment by some 30,000 positions in 2004, and used the related salary savings to improve remuneration of remaining personnel. The authorities have also announced an ambitious privatization program and supporting steps to improve the business climate.
"The thrust of the authorities' economic program for 2005 is to further strengthen the fiscal position, especially by institutionalizing the improvements introduced thus far, enhancing the quality of expenditure, and eliminating domestic arrears. The authorities are also planning to add momentum to other reforms. The proposed overhaul of the tax code (to simplify the tax structure, broaden the tax base, and eliminate exemptions and low-yield taxes) should further enhance revenue administration and the business climate. Reforms in other areas will be geared towards further strengthening the financial sector and fostering productivity gains and social protection, so as to improve growth prospects and living standards. A prudent monetary stance, accompanied by greater exchange rate flexibility and wage moderation, is expected to keep inflation low and safeguard competitiveness," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are 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, or 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 reduction of poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.