GEORGIA NEEDS MORE EFFORTS TO SUPPORT GROWTH REVIVAL-IMF

Georgia has managed to contain economic fallout of the crisis in Ukraine so far but needs to step up efforts to maintain a revival of growth, the International Monetary Fund said.

The IMF expects Georgia's economy to expand by 5 percent this year, in line with the government's forecast, after growth slowed down to 3.3 percent in 2013 from 6.2 percent the year before. The former Soviet republic's gross domestic product (GDP) grew by 5.9 percent in the first nine months of 2014.

"The key policy priority now is to navigate the economy through the difficult external environment. This requires maintaining macro stability, building buffers, and strengthening confidence to facilitate private investment," Azim Sadikov, the IMF resident representative in Georgia, told Reuters.

Sadikov said that a decline in exports to Ukraine, which faces pro-Russian separatist insurrection in eastern territories, had been offset by stronger exports to Europe and Russia.

Russia reopened its market for Georgian wine, mineral water and fruit last year after imposing bans in 2006, but relations between Moscow and Tbilisi are still tense following their 2008 war over two Moscow-backed breakaway regions in Georgia.

Sadikov said the reopening of the Russian market contributed almost 1 percentage point to growth in Georgia in 2013, but that  this benefit should be considered in the light of past experience - when Georgia lost its Russian market overnight.

"Georgia is less exposed to the Russian economy than other countries in the Caucasus and Central Asia," Sadikov said in Tbilisi, the capital of the South Caucasus country which lies on a transit route for Caspian oil and gas to Europe.

 "This helps the economy to cope better with the repercussions of the slowdown in Russia and the rouble's depreciation."

Sadikov said closer ties with the European Union gave Georgian companies a chance to operate freely in Europe.

Georgia signed an agreement on free trade and other ties with the EU in June, at the same time as Ukraine, and on Sept. 1 free trade began to flow between Georgia's 4.5 million people and the EU's 28 nations and 500 million consumers.

"The privileged access to the EU market and better policy predictability brought by the association agreement should attract investors from the EU and elsewhere," Sadikov said.

 Sadikov noted that fiscal policy implementation improved this year, with smoother aggregate spending profile than in 2013, but that capital budget execution has faced delays.

"We expect the usual increase in government spending in the fourth quarter, but the fiscal deficit this year will still be slightly below the IMF-supported program's target of 3.7 percent of GDP," Sadikov said.

“Should this increase in government spending lead to excessive balance of payments pressures, the authorities should stand ready to hold some of the spending back and continue allowing the lari to float.”