IMF Executive Board Completes Seventh and Eighth Reviews Under the Stand-By Arrangement for Georgia, Approves US$153 Million Disbursement

Press Release No. 11/7
January 12, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the seventh and eighth reviews of Georgia's economic performance under a Stand-By Arrangement (SBA) for an amount equivalent to SDR 477.1 million (about US$728 million1) approved on September 15, 2008 (see Press Release No. 08/208). On August 6, 2009, the Executive Board approved an augmentation of access under the SBA to an amount equivalent to SDR 747.1 million (about US$1 billion) and an extension of the SBA until June 14, 2011 (see Press Release No. 09/277).

The completion of the seventh and eighth reviews allows for the immediate disbursement of an amount equivalent to SDR 100 million (about US$153 million). In completing the review the Executive Board granted waivers for the nonobservance of the end-December 2010 performance criteria on the cash deficit of the consolidated government and total expenditures of the general government. The Executive Board also approved the rephasing of the remaining disbursements under the SBA.

The authorities indicated that they do not intend to draw the amounts (SDR 100 million) that became available to Georgia after the completion of the seventh and eight reviews.

After the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

“Backed by the steady implementation of the program’s economic policies, Georgia’s economic recovery has strengthened, as evidenced by better-than-expected growth and the stabilization of the exchange rate. The authorities’ economic policies, focused on tighter monetary and fiscal policies and exchange rate flexibility, will lay the groundwork for achieving macroeconomic stability and growth based on private sector financing and investment. While short-term risks to growth appear balanced, significant downside medium-term external risks remain, related in particular to the uncertainty surrounding the recovery in private capital inflows, including FDI.

“The budget for 2011, which provides for a further reduction of the deficit of about 2½ percent of GDP, is consistent with the authorities’ objective of reestablishing fiscal sustainability. The authorities’ commitment to cap expenditure in 2011 is commendable, as is their decision to introduce an escape clause in the constitutional amendment subjecting tax increases to a referendum. This clause will provide the authorities with more flexibility in implementing the consolidation efforts necessary over the medium term.

“While the recent increase in the policy rate and the decision to tighten reserve requirements will help to bring down inflation in 2011, the authorities should stand ready to tighten monetary policy further should inflationary pressures persist. Consistent with the need to rebuild net international reserves, exchange rate flexibility should remain an anchor of the authorities’ economic strategy.

“The banking sector’s high levels of capital and provisioning continue to provide adequate buffers against adverse shocks, but continued close supervision of banks remains critical. In this regard, capacity building toward risk-based supervision is welcome. As announced by the authorities, it is also important to continue tightening the regulatory framework as financial sector stability solidifies.”


1 The amounts in the US dollar are calculated based on the SDR exchange rate on January 11, 2011, with one US dollar equals SDR 0.654963.



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