Press Release: IMF Executive Board Approves Stand-By Arrangement and Stand-By Credit Facility for Georgia with Total Access of up to US$385.6 Million
April 12, 2012Press Release No. 12/131
April 12, 2012
On April 11, 2012, the Executive Board of the International Monetary Fund (IMF) approved a 24-month Stand-By Arrangement (SBA) and Stand-By Credit Facility (SCF) for Georgia in support of the government’s economic and financial program for 2012–13. The total access under the blend of SBA and SCF will be up to SDR 250 million (about US$385.6 million), evenly divided between the two arrangements. The authorities intend to treat the arrangements as precautionary. The approved SBA and SCF follow the successful completion of the 33-month SBA that expired on June 14, 2011 (see Press Release No.11/224).
Following the Executive Board discussion on Georgia, Mr. Min Zhu, Deputy Managing Director and Acting Chair, said:
“Georgia largely achieved the objectives of the previous Fund-supported program. Economic performance in 2011 was stronger than envisaged, inflation dropped to single digits, government debt declined, and international reserves increased. However, the unsettled global economic and financial conditions have increased risks.
“The authorities’ economic program, supported by the precautionary Stand-By Arrangement and Stand-By Credit Facility, aims at completing the macroeconomic adjustment process initiated under the last program. The program seeks to rebuild fiscal buffers, promote external adjustment, strengthen market confidence, and catalyze continued official financial support.
“The authorities’ commitment to pursue fiscal consolidation during the 2012–13 election period and their intention to focus these efforts on expenditure containment are welcome. The Economic Liberty Act reinforces the fiscal policy framework by providing the government with additional flexibility to introduce revenue-enhancing measures and by anchoring policies to medium-term sustainability objectives.
“The progress made in enhancing the monetary policy toolkit will help consolidate the gains made in price stability. Exchange rate flexibility will continue to be a critical element of the authorities’ economic strategy.
“Continued structural reforms to strengthen competitiveness are essential to sustain high and inclusive growth and create employment. The newly established Partnership Fund can play a useful role in attracting private investment, but it will be important to strengthen its institutional framework so as to limit the accumulation of contingent fiscal liabilities and ensure that public resources are optimally allocated.
“The banking sector is well capitalized and has adequate liquidity. The authorities’ efforts to strengthen the prudential and supervisory framework ahead of a possible new credit cycle are welcome, as is the development of new tools to better assess and counter potential systemic risks.”
Background and Program Summary
Georgia’s economic performance in 2011 was stronger than originally envisaged, with growth reaching 7 percent, inflation converging to the low single digits, government debt falling to 34 percent of GDP, and international reserves increasing to US$2.8 billion.
Despite these achievements, the unsettled external environment has increased external risks. At this juncture, the economic outlook for 2012 remains relatively favorable, with growth projected to slow to 6 percent and inflation remaining subdued. However, access to IMF resources would become available under the program in the event of a significant worsening of external economic and financial conditions.
The program’s objectives are to rebuild fiscal buffers, promote external adjustment, strengthen market confidence, and catalyze continued official financial support. Fiscal adjustment, a flexible exchange rate, and monetary policy dedicated to price stability will be the key macro policy underpinnings of the program. The fiscal deficit is targeted to decline to 3.5 percent of GDP in 2012 and to 3 percent in 2013, consistent with a steady reduction of the government debt ratio.
Medium-term challenges remain, notably in terms of lowering the current account deficit (11.8 percent of GDP in 2011) and reducing unemployment (16.3 percent in 2010). To address these challenges, sound macroeconomic policies and strong business environment policies will be complemented with sector policies to encourage private investment and education and training reforms to improve labor-market skills.