Statement of an IMF Staff Mission at the Conclusion of a Visit to Georgia

Press Release No. 08/46
March 7, 2008

An International Monetary Fund (IMF) mission visited Georgia during February 29-March 7, 2008 to assess recent economic developments and prospects for 2008. The mission met with senior officials and representatives of the private sector. The mission issued the following statement today in Tbilisi:

"Georgia's economic performance in 2007 was exceptionally strong, with growth of real GDP exceeding 12 percent. This performance was due mainly to private capital inflows, which exceeded 20 percent of GDP and included a large element of foreign direct investment. Although private capital inflows are subject to uncertainty, recent positive trends suggest they will continue at broadly the same level as last year. Consequently, the mission projects real growth at about 9 percent in 2008.

"End-period inflation was 11 percent for 2007, which exceeded the authorities' target. In part this was the result of higher global food and energy prices, but also reflected the loose monetary stance that prevailed during most of 2007, with broad measures of money supply increasing by 50 percent. Against this background, the mission welcomes the authorities' commitment to reduce inflation to 8 percent by end-2008 and strongly supports the goals of more moderate monetary expansion, the move to inflation targeting, and greater exchange rate flexibility.

"An important element in reducing inflation in 2008 will be the authorities' plan for implementing a tighter fiscal stance. Continued improvements in tax and customs administration should allow revenues to be maintained even as some tax rates are reduced. Of particular importance to maintaining macroeconomic stability is to resist new government expenditure initiatives.

"The broad intent of the proposed macroeconomic and financial reform package now before parliament is welcome. In particular, the mission supports the efforts to strengthen financial sector supervision and combat money laundering. The introduction of well-managed and transparent Future Generations and Stable Development Funds could be a useful tool for restraining budgetary pressures.

"At the same time, the mission stressed the importance of avoiding any erosion of central bank independence. In this regard, the mission believes that requirements for frequent parliamentary approval of monetary policy goals and instruments, combined with new provisions for the automatic dismissal of the President of the National Bank of Georgia for missing the inflation target, would weaken the operations of the central bank.

"The mission understands the authorities' interest in accessing non-concessional sources of external financing. Nonetheless, in the absence of any financing need in the context of the 2008 budget, it is important that the uses of such financing be clearly specified, to allow a careful assessment of the benefits and the costs.

"The IMF mission plans to visit Tbilisi again in June 2008 to conduct discussions for the Article IV consultation."



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