Statement by IMF Staff Mission to Georgia

Press Release No. 06/276
December 15, 2006

The following statement was issued on December 12, 2006 in Tbilisi at the conclusion of a staff mission of the International Monetary Fund (IMF):

"A mission of the International Monetary Fund (IMF) visited Georgia during December 2-12 to review recent economic developments, assess the impact of the Russian embargo on Georgia's economy, and hold discussions for the fifth review under the IMF's Poverty Reduction and Growth Facility (PRGF). The mission met with senior government officials, representatives of the private sector, and parliamentarians.

"Georgia's overall economic performance in 2006 continues to be strong despite the external shock associated with Russia's economic embargo. Economic growth has been hindered by the loss of Russian export markets, but remains robust. Preliminary indications are that real GDP growth could be about 8 percent for 2006.

"Inflation has subsided from its peak in mid-2006 and it seems likely that end-period inflation for 2006 will be less than 10 percent. The mission congratulates the authorities on this important achievement. Georgia's prospects for sustained economic growth could be enhanced if inflation could be reduced even further. To this end, the mission welcomes the authorities' commitment to target inflation of 6 percent for 2007 and recommends continued tight monetary and fiscal policies in 2007 to help achieve this objective.

"The mission estimates that Russia's economic embargo will increase the external current account deficit by about $250-$300 million in 2007. The authorities expect that this will be financed by higher foreign exchange proceeds generated by the large inflow of foreign direct investment (FDI) projected for this year and 2007, as well as by a very substantial increase in tourism revenues. The mission welcomes the improved outlook for foreign investment and tourism. In view of the considerable uncertainty regarding the size and timing of FDI inflows, the mission recommends that the adjustment to the external shock could be eased by reducing the size of the overall fiscal deficit from the current projection of 2½ percent of GDP for 2007.

"Despite Georgia's strong underlying economic performance, the mission expects that the Russian embargo will lead to moderately slower growth of 6-7 percent in 2007. The recovery of the economy from this shock will rest largely on its ability to generate rapid export growth in the medium term. To this end, the mission urges the authorities to accelerate structural reforms, especially in those areas pertaining to stronger property rights.

"Based on the understandings contained in the government's Memorandum of Economic and Financial Policies, the IMF mission plans to recommend completion of the fifth review under the PRGF arrangement. It is anticipated that completion of the fifth review will be considered by the IMF's Executive Board in late February or early March 2007."



IMF EXTERNAL RELATIONS DEPARTMENT

Public Affairs    Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100