## 1. Recent Foreign Exchange Interventions in Georgia ## Source details **Canonical URL:** [1. Recent Foreign Exchange Interventions in Georgia](https://www.imf.org/-/media/files/publications/cr/2025/english/1geoea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1geoea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1geoea2025001-source-pdf.pdf.json) --- ### Context and recent developments - Growth and activity - Growth reached 9.4 percent in 2024. - Rapid growth estimates for January-April 2025 were 8.8 percent y/y. - ICT and transport services, tourism recovery, consumption were key growth drivers. - External sector and reserves - Gross international reserves fell from US$5.4 billion in August 2023 to US$4.5 billion in April 2025. - Reserve coverage in April 2025 was equivalent to 80 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. - The current account deficit narrowed in 2024 to 4.4 percent of GDP. - FDI declined for the second consecutive year. - Price and monetary developments - Headline inflation averaged 1.8 percent over 2023-24 and rose to 3.5 percent y/y in May 2025. - Core inflation was 2.1 percent in May 2025. - The National Bank of Georgia (NBG) policy rate was unchanged at 8 percent since May 2024. - The NBG effectively tightened policy between November and April by limiting liquidity injections and allowing the interbank rate to exceed the policy rate by 20-50 bps. - Fiscal and financial sector - The fiscal deficit held at 2.4 percent of GDP in 2024. - Public debt declined to 36 percent of GDP. - The 2025 budget targets a deficit of 2.5 percent of GDP. - The deficit through May 2025 was 0.3 percent of GDP. - Banking system: well-capitalized, liquid, profitable; private sector credit expanded by 15 percent (y/y) in May 2025; credit-to-GDP rose above pre-pandemic levels while the credit gap remains negative. - Political and program context - Political tensions followed October 2024 parliamentary elections and suspension of the EU accession process. - The Stand-By Arrangement approved in June 2022 expired in June 2025; reviews had been on hold since June 2023 due to NBG governance and SOE reform concerns. ### Findings on FX interventions (Box 1) - Scope of interventions - From 2020 to 2024, the NBG actively intervened in the FX market, with two main rounds: pandemic-related outflows and election-related uncertainty ahead of October 2024. - Rationale - Georgia’s shallow FX market and high, volatile Uncovered Interest Parity (UIP) premia increase vulnerability to external shocks and shifts in investor sentiment, creating a case for FX intervention (FXI) to mitigate disorderly exchange rate pressures. - Model-based assessment and effects - A counterfactual without FXI during 2020-2024 (using an estimated DSGE model for Georgia) suggests: - Inflation and interest rates would have been higher. - GDP would have been slightly lower. - The model underestimates long-run costs of FXI, including: - Adverse impact on hedging market development. - Running down reserves to low levels. - Potential implications for the credibility of the NBG’s commitment to flexible exchange rates and inflation targeting. - Operational lessons and preparatory steps for future FXI - Given high uncertainty on exchange rate pressure drivers, low reserves, and concerns about NBG independence, a more measured approach to FXI is warranted. - Critical preparatory steps include: - Strengthening institutional independence (¶14). - Accumulating higher reserve buffers. - Developing a clear and transparent framework defining conditions under which FXI is justified, implementation modalities consistent with prudent risk management, and effective public communication. ### Policy recommendations on monetary policy, reserves, and NBG governance - Monetary policy stance - Maintain a broadly neutral, flexible, data-driven stance to keep inflation expectations anchored. - Remain cautious on policy rate cuts given global uncertainty and rising domestic food prices; tighten if persistent inflationary pressures emerge. - Staff estimates the neutral rate to be around 7½-8¼ percent; authorities estimate it at 7 percent. - Exchange rate and reserve policy - Enhance exchange rate flexibility and focus on opportunistic FX purchases to rebuild reserves. - Allow the exchange rate to act as a shock absorber and avoid actions that undermine monetary policy transmission, transparency, and credibility (e.g., permitting the interbank rate to exceed the policy rate without clear communication). - Strengthen policy communication by clarifying the NBG’s assessment of balance of risks and how it informs decisions. - Strengthening NBG governance and independence (¶14) - Amend the NBG law in line with IMF TA to: - Ensure a non-executive majority on the NBG’s oversight board. - Clarify the NBG succession framework and strengthen board member qualification criteria. - Limit the possibility of discretionary financial transfers to the government. - Shift from a presidential to a collegial decision-making model is desirable; authorities prefer a gradual shift starting with monetary policy. - FXI operationalization (from Box 1) - Operationalize FXI only after: - Strengthening institutional independence. - Accumulating higher reserve buffers. - Developing and communicating a transparent FXI framework and prudent risk management approach. ### Outlook, projections, and risks - Baseline projections - Growth is projected to moderate to 7.2 percent in 2025 and converge to medium-term potential of 5 percent. - Inflation is projected to peak around 4 percent in mid-2025, reach 3½ percent by end-2025, and decline to 3 percent in 2026. - The current account deficit is projected to stabilize around 5 percent of GDP. - Reserve coverage is expected to improve to 100 percent of the ARA metric over the medium term, supported by opportunistic FX purchases and higher FDI. - Key risks - Resolution of the war in Ukraine could unwind migration and transit trade gains but may create reconstruction opportunities. - Weaker investor confidence and slower trading partner growth are downside risks; trade diversion could be a benefit. - Accelerating de-globalization could disrupt trade routes and challenge Georgia’s logistics positioning. - Volatile oil prices and heightened domestic political uncertainty, strained EU relations, and potential sanctions could dampen FDI and tourism and pressure the lari. - Healthy fiscal and financial buffers mitigate these risks. ### Tax policy and administration: measures, yields, and next steps - Recent measures (expected yield): - Higher excises on cigarettes: 0.08 percent of GDP - Higher CIT and PIT rates on gambling sector: 0.15 percent of GDP - Addressing misuse in construction of contractual employment taxed at 1 percent: 0.10 percent of GDP - Total expected yield from measures: 0.33 percent of GDP - Overall expectation from higher excises, gambling taxes, and measures to address tax avoidance and evasion (especially in construction): 0.3 percent of GDP from 2025 onwards - Medium-Term Revenue Strategy (MTRS): - Should be strengthened by clearly outlining planned reforms, implementation timelines, and expected revenue yields - Further recommended actions: - (i) Streamlining tax expenditures - (ii) Simplifying property taxation and strengthening mining taxation - (iii) Improving access to third-party data, including from financial institutions - (iv) Advancing compliance risk management in high-risk sectors - (v) Expanding Large Taxpayer Office (LTO) coverage to affiliates, subsidiaries, and high-net-worth individuals ### Large Taxpayer Office (LTO): performance and impacts - Reestablished in 2021; contributed to strengthened tax administration. - Cohorts and coverage: - 203 taxpayers identified in 2021 (first cohort), increasing to 264 by 2024 (second cohort). - Quantified impacts and cost-effectiveness: - Reintroduction of the LTO has boosted tax revenue by 0.4–0.7 percent of GDP through enhanced enforcement and taxpayer services. - First cohort (assigned in 2021): annual increase of GEL 1.4 million in final tax assessments per taxpayer: - VAT: GEL 670,000 - Withholding tax (WHD): GEL 560,000 - Distributed profit tax (DPT): GEL 175,000 - Operating costs: GEL 645,000 - Second cohort (assigned in 2024): final tax assessments rose from GEL 1.4 to 1.5 million per taxpayer compared to the first cohort - LTO identified 67 high-risk companies flagging near GEL 260 million in potential tax losses - Indicators of improved compliance: higher accrual tax payments, more collection letters, fewer audits, and correction of initial tax assessments. - Survey figures partially redacted in source. ### Public investment management and spending efficiency - Key findings: - Despite high public investment, infrastructure quality remains below many emerging market peers. - Need to continue improving PIM processes and more effective implementation. - Ongoing and planned initiatives: - A digital PIM module is being tested with plans to integrate it into the 2026 budget. - Spending reviews on education and health recommended to improve outcomes at current expenditure levels. - Social assistance and targeting: - Social assistance is relatively generous but could improve coverage and targeting (excluding social pensions). - Planned pilot of an enhanced proxy means test formula—developed with World Bank support—for targeting social assistance beneficiaries ahead of full adoption next year. ### SOE reform and fiscal oversight - Progress and remaining tasks: - Authorities partially implemented SBA-envisaged reforms, including piloting shared MoF and MoE ownership of three SOEs and enhancing MoF financial oversight over the seven largest SOEs. - Need to develop a reform roadmap drawing on pilots to enhance SOE performance. - Critical reforms to complete: - Separating the state’s shareholder, regulatory, and policy functions to avoid conflicts of interest (beyond recently unbundled energy sector). - Strengthening corporate governance. - IMF technical assistance (TA) to assess actions and advise on reform options. - Authorities’ stance: - SOE reform is a top government priority; oversight by MoF should be strong but not interfere in day-to-day SOE operational decisions. ### Financial sector resilience and macroprudential framework - Banking sector vulnerabilities and developments: - Share of unhedged FX bank loans remains high at around 80 percent. - NBG raised FX loan threshold for unhedged borrowers to GEL 750,000 to target households and small businesses. - Shrinking lari deposits and rapidly expanding lari loans—especially consumer loans—have created lari funding pressures and higher funding costs for banks, particularly smaller ones. - Riskier nonbank financing, including FX bond issuance and lending by real estate developers, has risen considerably; not yet deemed systemic but requires close monitoring. - Macroprudential and crisis management measures: - Cycle-neutral countercyclical buffer to be gradually increased from ½ percent currently to 1 percent by March 2027. - MREL for domestic systemically important banks to be gradually raised from 10 percent currently to 20 percent of total loss-absorbing capacity by end-2027. - All MREL-eligible capital instruments now required to include a contractual bail-in clause; NBG revising MREL framework to address creditor immunity issues. - Banks started contributing to the ex-ante resolution fund, expected to reach target size by 2033; fund remains underfunded and key operational details pending. - Deposit guarantee coverage raised to GEL 30,000. - Authorities should continue efforts to make the resolution framework fully operational and secure back-up funding. - Additional reforms and priorities: - Implement remaining recommendations from the 202 Financial Sector Assessment Program (FSA). - Establish an effective regulatory and supervisory framework for virtual asset service providers (VASPs) following registration with IMF TA support. - Develop a consolidated supervision framework with IMF TA support, particularly as large banks expand into non-bank and cross-border activities. - NBG’s instant payment system expected to launch in the second half of 2026 to promote competition and financial inclusion. ### Enhancing inclusive growth: structural reforms, informality, and emigration - Constraints on potential growth: - Structurally high long-term and youth unemployment, low educational attainment, infrastructure bottlenecks in transport and logistics, and low agricultural productivity. - Income inequality elevated compared to peers; outward migration and informality challenge the labor market. - Policy directions to improve productivity and job-rich growth: - Target agricultural support better, improve teacher quality, and expand vocational training to raise rural labor force participation and facilitate transition to formal employment. - Target policies at cash intensive and lightly regulated sectors like construction, food services, and childcare to reduce informality. - Informality findings (Box 3): - Survey estimates of informality are low to moderate; modelled estimates are significantly higher. - A World Bank model variant reports over 60 percent of Georgian GDP as informal per one approach. - Methodological improvements indicate substantially lower estimates (around 20 percent of GDP) and a pronounced decline over time. - If informality stems mainly from lack of good formal jobs, focus should be on job creation rather than solely on stricter formalization measures. - Emigration findings (Box 4): - Emigration slowed but remains significant; averaged 100,000 people per year historically. - Emigrants increasingly moved to OECD countries for employment (Germany, Italy, Spain, France). - In 2020/21, source figures for educational attainment and inactivity were partially redacted in the source. - Remittances have averaged around 15 percent of GDP in the past decade. - Remittances make up 40-45 percent of monthly income for receiving households; receiving households earn 25-30 percent more than others and have a 20 percent lower probability of employment. - Return migration: since 2012, Georgian returnees have averaged two thirds of those emigrating. ### Staff appraisal — performance and outlook - Since 2021, real GDP growth has averaged over 9 percent annually, driven by post-pandemic recovery and expansion in ICT and transport services. - Projections reiterated: - Real GDP growth expected to reach 7.2 percent in 2025 and converge to 5 percent medium-term potential. - Inflation projected to remain near the 3 percent target. - Current account deficit projected to stabilize around 5 percent of GDP. - Reserves projected to improve gradually, supported by opportunistic FX purchases and recovery in FDI. - Challenges persist: high structural unemployment, income inequality, outward migration, and informality. ### Selected key statistics and medium-term projections (preserving source values) - Real GDP (annual percent change): 2020 -6.3; 2021 10.6; 2022 11.0; 2024 7.8; 2025 9.4; 2026 7.2; 2027 5.3; 2028 5.0; 2029 5.0; 2030 5.0. - Output Gap: 2020 -6.9; 2021 -2.7; 2022 0.8; 2024 0.8; 2025 2.3; 2026 2.3; 2027 1.3; 2028 0.0; 2029 0.0; 2030 0.0. - Nominal GDP (billion laris): 2020 49.8; 2021 60.7; 2024 80.9; 2025 91.9; 2026 102.5; 2027 111.7; 2028 121.5; 2029 131.9; 2030 143.4. - Nominal GDP (billion US$): 2020 16.0; 2021 18.8; 2024 30.8; 2025 33.8; 2026 36.7; 2027 39.2; 2028 41.4; 2029 43.6; 2030 46.1. - GDP per capita (thousand US$): 2020 4.3; 2021 5.1; 2024 6.8; 2025 8.2; 2026 9.1; 2027 9.9; 2028 10.6; 2029 11.2; 2030 11.8. - CPI, Period average: 2020 5.2; 2021 9.6; 2022 11.9; 2024 2.5; 2025 1.1; 2026 3.4; 2027 3.1; 2028 3.0; 2029 3.0; 2030 3.0. - Current account balance (US$, billions): 2020 -2.0; 2021 -1.9; 2024 -1.1; 2025 -1.7; 2026 -1.5; 2027 -1.6; 2028 -1.8; 2029 -2.0; 2030 -2.1. - Current account balance (percent of GDP): 2020 -12.4; 2021 -10.3; 2024 -4.4; 2025 -5.6; 2026 -4.4; 2027 -4.4; 2028 -4.6; 2029 -4.8; 2030 -4.8. - Gross international reserves (US$ billions): 2020 3.9; 2021 4.3; 2024 4.9; 2025 5.0; 2026 4.4; 2027 4.7; 2028 4.9; 2029 5.5; 2030 6.2. - Deposit dollarization (percent): 2020 61.4; 2021 59.9; 2024 56.1; 2025 50.7; 2026 52.7; 2027 52.1; 2028 51.9; 2029 51.7; 2030 51.4. - Credit dollarization (percent): 2020 55.7; 2021 50.9; 2024 45.0; 2025 44.5; 2026 42.9; 2027 42.9; 2028 42.5; 2029 42.1; 2030 41.7. - Financial Soundness Indicators (selected): Regulatory capital to risk-weighted assets (Dec 2022) 20.3; (Dec 2023) 21.8; (Dec 2024) 22.7; (Mar 2025) 22.1. Nonperforming loans to total gross loans around 1.5–1.8 across 2022–2025. ### External sector, reserves, and FX intervention guidance - Current Account and External Balance - CA deficit narrowed to 4.4 percent of GDP in 2024 from 5.6 percent of GDP in 2023. - CA deficit expected to remain broadly stable at 4.4 percent of GDP in 2025 and stabilize around 5 percent of GDP over the medium-term. - Cyclically-adjusted CA balance stands at -4.1 percent of GDP; 2024 norm is -4.9 percent of GDP; CA gap corresponds to 0.8 percent of GDP. - REER and competitiveness - Since 2020, the lari appreciated in real terms by about 27.4 percent (nominally by 13 percent). - In 2024 the lari depreciated in real terms by 5.3 percent. - REER approach suggests an overvaluation of 7.7 percent; CA approach suggests a modest REER undervaluation of 2.1 percent. - FX intervention and reserves level - Gross international reserves (GIR) fell to US$4.4 billion in 2024 from US$5.0 billion in 2023. - ARA metric coverage decreased from 95.5 percent in 2023 to 77.3 percent in 2024; adjusted ARA increases to 83.5 percent. - Targeted prudent level by the authorities is 120-130 (percent of the ARA metric). - Import cover dropped from 3.2 to 2.6 months. - Staff projects GIR to rise to USD 4.68 billion in 2025, reaching 81 percent of the ARA metric. - Policy recommendation: continue strategic FX purchases and limit FX sales only to prevent disorderly market conditions. ### Fiscal and debt outlook (DSA highlights) - Public debt and fiscal stance - Public debt: 36.1, 34.7, 34.1, 34.3, 34.5, 34.9, 35.7, 35.3, 34.9, 34.4, 34.0 (2024–2034 sequence shown in baseline table). - Primary deficit: 0.7, 0.5, 0.5, 0.5, 0.5, 0.5, 0.6, 0.8, 0.9, 0.9, 0.9 (percent of GDP sequence). - Gross financing needs (GFN): 5.5, 4.7, 6.0, 5.2, 6.2, 4.8, 5.7, 6.5, 5.5, 5.9, 6.3 (percent of GDP sequence). - Sovereign risk assessment - "The overall risk of sovereign debt distress is assessed to be low and government debt to be sustainable." - Public debt projected to remain broadly stable around "34–36 percent of GDP". - General government debt: 36.1 percent of GDP in 2024 per commentary. - Debt management strategy - Authorities aim to shift government debt portfolio toward a "65/35 external-to-domestic ratio" (objective). - Target average time to maturity of "at least 5.5 years". - New domestic instruments introduced: "3-, 5-, and 7-year treasury bonds". ### Key recommendations summarized (Annex I and risk matrix) - Fiscal policy - Rebuild fiscal buffers and create room for productive spending under the fiscal rule. - Develop a medium-term revenue strategy and improve public investment management. - Advance SOE reform to limit fiscal risks and enhance efficiency. - Monetary and exchange rate policy - Proceed gradually with monetary policy normalization; continue exchange rate flexibility and reserve buildup. - Amend the NBG law to ensure a non-executive majority on the oversight board and limit discretionary transfers to the government. - Financial sector - Maintain financial buffers and vigilance; address concentration and dollarization risks. - Regulate and supervise virtual asset providers; enhance macroprudential and resolution frameworks. - Structural policies - Infrastructure investments, education and training, and judicial and anti-corruption reforms to promote inclusive, job-rich growth. - Risk responses (selected) - Allow flexible exchange rate to act as a shock absorber. - Tighten monetary policy if faced with heightened price pressures. - Utilize foreign exchange reserves to prevent disorderly depreciation under clear, communicated conditions. *Source: IMF staff and national authorities (excerpts from the provided content).* ### 1. Recent Foreign Exchange Interventions in Georgia _____________________________________________ 9 ### 1. Recent Foreign Exchange Interventions in Georgia ### Context and recent developments - Growth and activity - Growth reached 9.4 percent in 2024. - Rapid growth estimates for January-April 2025 were 8.8 percent y/y. - ICT and transport services, tourism recovery, consumption were key growth drivers. - External sector and reserves - Gross international reserves fell from US$5.4 billion in August 2023 to US$4.5 billion in April 2025. - Reserve coverage in April 2025 was equivalent to 80 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. - The current account deficit narrowed in 2024 to 4.4 percent of GDP. - FDI declined for the second consecutive year. - Price and monetary developments - Headline inflation averaged 1.8 percent over 2023-24 and rose to 3.5 percent y/y in May 2025. - Core inflation was 2.1 percent in May 2025. - The National Bank of Georgia (NBG) policy rate was unchanged at 8 percent since May 2024. - The NBG effectively tightened policy between November and April by limiting liquidity injections and allowing the interbank rate to exceed the policy rate by 20-50 bps. - Fiscal and financial sector - The fiscal deficit held at 2.4 percent of GDP in 2024. - Public debt declined to 36 percent of GDP. - The 2025 budget targets a deficit of 2.5 percent of GDP. - The deficit through May 2025 was 0.3 percent of GDP. - Banking system: well-capitalized, liquid, profitable; private sector credit expanded by 15 percent (y/y) in May 2025; credit-to-GDP rose above pre-pandemic levels while the credit gap remains negative. - Political and program context - Political tensions followed October 2024 parliamentary elections and suspension of the EU accession process. - The Stand-By Arrangement approved in June 2022 expired in June 2025; reviews had been on hold since June 2023 due to NBG governance and SOE reform concerns. ### Findings on FX interventions (Box 1) - Scope of interventions - From 2020 to 2024, the NBG actively intervened in the FX market, with two main rounds: pandemic-related outflows and election-related uncertainty ahead of October 2024. - Rationale - Georgia’s shallow FX market and high, volatile Uncovered Interest Parity (UIP) premia increase vulnerability to external shocks and shifts in investor sentiment, creating a case for FX intervention (FXI) to mitigate disorderly exchange rate pressures. - Model-based assessment and effects - Using an estimated DSGE model for Georgia, a counterfactual without FXI during 2020-2024 suggests: - Inflation and interest rates would have been higher. - GDP would have been slightly lower. - The report notes the model underestimates long-run costs of FXI, including: - Adverse impact on hedging market development. - Running down reserves to low levels. - Potential implications for the credibility of the NBG’s commitment to flexible exchange rates and inflation targeting. - Operational lessons and preparatory steps for future FXI - Given high uncertainty on exchange rate pressure drivers, low reserves, and concerns about NBG independence, a more measured approach to FXI is warranted. - Critical preparatory steps include: - Strengthening institutional independence (¶14). - Accumulating higher reserve buffers. - Developing a clear and transparent framework defining conditions under which FXI is justified, implementation modalities consistent with prudent risk management, and effective public communication. ### Policy recommendations on monetary policy, reserves, and NBG governance - Monetary policy stance - Maintain a broadly neutral, flexible, data-driven stance to keep inflation expectations anchored. - Remain cautious on policy rate cuts given global uncertainty and rising domestic food prices; tighten if persistent inflationary pressures emerge. - Staff estimates the neutral rate to be around 7½-8¼ percent; authorities estimate it at 7 percent (footnote reference). - Exchange rate and reserve policy - Enhance exchange rate flexibility and focus on opportunistic FX purchases to rebuild reserves. - Allow the exchange rate to act as a shock absorber and avoid actions that undermine monetary policy transmission, transparency, and credibility (e.g., permitting the interbank rate to exceed the policy rate without clear communication). - Strengthen policy communication by clarifying the NBG’s assessment of balance of risks and how it informs decisions. - Strengthening NBG governance and independence (¶14) - Amend the NBG law in line with IMF TA to: - Ensure a non-executive majority on the NBG’s oversight board. - Clarify the NBG succession framework and strengthen board member qualification criteria. - Limit the possibility of discretionary financial transfers to the government. - Shift from a presidential to a collegial decision-making model is desirable; authorities prefer a gradual shift starting with monetary policy. - FXI operationalization (from Box 1) - Operationalize FXI only after: - Strengthening institutional independence. - Accumulating higher reserve buffers. - Developing and communicating a transparent FXI framework and prudent risk management approach. ### Outlook, projections, and risks - Baseline projections - Growth is projected to moderate to 7.2 percent in 2025 and converge to medium-term potential of 5 percent. - Inflation is projected to peak around 4 percent in mid-2025, reach 3½ percent by end-2025, and decline to 3 percent in 2026. - The current account deficit is projected to stabilize around 5 percent of GDP. - Reserve coverage is expected to improve to 100 percent of the ARA metric over the medium term, supported by opportunistic FX purchases and higher FDI. - Key risks (Annex II) - Resolution of the war in Ukraine could unwind migration and transit trade gains but may create reconstruction opportunities. - Weaker investor confidence and slower trading partner growth are downside risks; trade diversion could be a benefit. - Accelerating de-globalization could disrupt trade routes and challenge Georgia’s logistics positioning. - Volatile oil prices and heightened domestic political uncertainty, strained EU relations, and potential sanctions could dampen FDI and tourism and pressure the lari. - Healthy fiscal and financial buffers mitigate these risks. *Source: IMF staff and national authorities (excerpts from the provided content).* ### 17. While notable progress has been made, further tax policy and administration reforms ### 1geoea2025001-source-pdf - 17. While notable progress has been made, further tax policy and administration reforms ### Tax policy and administration: recent measures, yields, and next steps - Recent measures (expected yield): - Higher excises on cigarettes: 0.08 percent of GDP - Higher CIT and PIT rates on gambling sector: 0.15 percent of GDP - Addressing misuse in construction of contractual employment taxed at 1 percent: 0.10 percent of GDP - Total expected yield from measures: 0.33 percent of GDP - Overall expectation from higher excises, gambling taxes, and measures to address tax avoidance and evasion (especially in construction): 0.3 percent of GDP from 2025 onwards - Medium-Term Revenue Strategy (MTRS): - Should be strengthened by clearly outlining planned reforms, implementation timelines, and expected revenue yields - Further recommended actions: - (i) Streamlining tax expenditures - (ii) Simplifying property taxation and strengthening mining taxation - (iii) Improving access to third-party data, including from financial institutions - (iv) Advancing compliance risk management in high-risk sectors - (v) Expanding Large Taxpayer Office (LTO) coverage to affiliates, subsidiaries, and high-net-worth individuals ### Large Taxpayer Office (LTO): performance and revenue impacts - LTO reestablishment and performance: - Reestablished in 2021; contributed to strengthened tax administration - Georgia ranked within the top 30 percent of tax administrations globally as of 2022, with an operational strength index slightly below the EU average but above emerging market and CCA peers - Objectives and institutional features: - Main objectives: (i) enhancing services for large taxpayers, and (ii) improving enforcement through data-driven risk analysis and compliance risk management - Introduced a Risk Differentiation Framework, Compliance Risk Committee, and dedicated Service, Analysis, and Transfer Pricing divisions - Cohorts: 203 taxpayers identified in 2021 (first cohort), increasing to 264 by 2024 (second cohort) after revised thresholds - Quantified impacts and cost-effectiveness (first and second cohorts): - Reintroduction of the LTO has boosted tax revenue by 0.4–0.7 percent of GDP through enhanced enforcement and taxpayer services - First cohort (assigned in 2021): annual increase of GEL 1.4 million in final tax assessments per taxpayer, mainly: - VAT: GEL 670,000 - Withholding tax (WHD): GEL 560,000 - Distributed profit tax (DPT): GEL 175,000 - Operating costs: GEL 645,000 - Second cohort (assigned in 2024): final tax assessments rose from GEL 1.4 to 1.5 million per taxpayer compared to the first cohort - LTO identified 67 high-risk companies flagging near GEL 260 million in potential tax losses - Indicators of improved compliance: higher accrual tax payments, more collection letters, fewer audits, and correction of initial tax assessments - Survey and satisfaction (reported but figures partially redacted in source): - A 202 survey found that percent of large taxpayers were satisfied with the LTO’s services, and 0 percent reported improved understanding and compliance (figures as presented in source) ### Public investment management (PIM) and spending efficiency - Key findings: - Despite high public investment, infrastructure quality remains below many emerging market peers - Need to continue improving PIM processes and more effective implementation - Ongoing and planned initiatives: - A digital PIM module is being tested with plans to integrate it into the 2026 budget - Spending reviews on education and health recommended to improve outcomes at current expenditure levels - Social assistance and targeting: - Social assistance is relatively generous but could improve coverage and targeting (excluding social pensions) to prioritize the most vulnerable - Planned pilot of an enhanced proxy means test formula—developed with World Bank support—for targeting social assistance beneficiaries ahead of full adoption next year - Continued assessment and strengthening of active labor market policies, including the public works program ### State-Owned Enterprise (SOE) reform and fiscal oversight - Progress and remaining tasks: - Authorities partially implemented SBA-envisaged reforms, including piloting shared MoF and MoE ownership of three SOEs and enhancing MoF financial oversight over the seven largest SOEs - Need to develop a reform roadmap drawing on pilots to enhance SOE performance - Critical reforms to complete: - Separating the state’s shareholder, regulatory, and policy functions to avoid conflicts of interest (beyond recently unbundled energy sector) - Strengthening corporate governance - IMF technical assistance (TA) to assess actions and advise on reform options - Authorities’ stance: - SOE reform is a top government priority; oversight by MoF should be strong but not interfere in day-to-day SOE operational decisions ### Maintaining financial sector resilience and macroprudential framework - Banking sector vulnerabilities and developments: - Share of unhedged FX bank loans remains high at around 80 percent - NBG raised FX loan threshold for unhedged borrowers to GEL 750,000 to target households and small businesses - Shrinking lari deposits and rapidly expanding lari loans—especially consumer loans—have created lari funding pressures and higher funding costs for banks, particularly smaller ones - Riskier nonbank financing, including FX bond issuance and lending by real estate developers, has risen considerably; not yet deemed systemic but requires close monitoring - Macroprudential and crisis management measures: - Cycle-neutral countercyclical buffer to be gradually increased from ½ percent currently to 1 percent by March 2027 - MREL for domestic systemically important banks to be gradually raised from 10 percent currently to 20 percent of total loss-absorbing capacity by end-2027 - All MREL-eligible capital instruments now required to include a contractual bail-in clause; NBG revising MREL framework to address creditor immunity issues - Banks started contributing to the ex-ante resolution fund, expected to reach target size by 2033; fund remains underfunded and key operational details pending - Deposit guarantee coverage raised to GEL 30,000 - Authorities should continue efforts to make the resolution framework fully operational and secure back-up funding - Additional reforms and priorities: - Implement remaining recommendations from the 202 Financial Sector Assessment Program (FSA) (implementation nearly complete as noted) - Establish an effective regulatory and supervisory framework for virtual asset service providers (VASPs) following registration with IMF TA support - Develop a consolidated supervision framework with IMF TA support, particularly as large banks expand into non-bank and cross-border activities - Improve competition in financial services and foster innovation through open banking initiatives - NBG’s instant payment system expected to launch in the second half of 2026 to promote competition and financial inclusion - Authorities’ views: - Committed to strengthening policy framework, monitoring consumer lending and non-bank real estate activity, and requested Fund TA to operationalize the resolution framework and enhance consolidated supervision - View the FX threshold as a more practicable alternative to an outright ban on unhedged borrowing ### Enhancing inclusive growth: structural reforms, informality, and emigration - Constraints on potential growth: - Structurally high long-term and youth unemployment, low educational attainment, infrastructure bottlenecks in transport and logistics, and low agricultural productivity - Income inequality elevated compared to peers; outward migration and informality challenge the labor market - Policy directions to improve productivity and job-rich growth: - Target agricultural support better, improve teacher quality, and expand vocational training to raise rural labor force participation and facilitate transition to formal employment - Target policies at cash intensive and lightly regulated sectors like construction, food services, and childcare to reduce informality - Managing emigration and leveraging remittances: - Invest in vocational education, training, and career development to develop and retain skills - Promote financial literacy and mobilize the diaspora to channel remittances into physical and human capital investments - Encourage return migration through reintegration programs and entrepreneurial support - Attract foreign talent through tailored immigration policies and international partnerships - Governance and business environment: - Georgia outperforms regional peers on governance indicators like rule of law and corruption perception but has deteriorated over the past five years - 2024 European Commission Report highlights persistent influence of vested interests across political, judicial, and economic spheres - Recommended reforms: reinforce judicial independence, strengthen Anti-Corruption Bureau autonomy, and implement risk-based asset declaration verification with effective sanctions - Informality (Box 3) — findings and implications: - Survey estimates of informality are low to moderate; modelled estimates are significantly higher - A World Bank model variant reports over 60 percent of Georgian GDP as informal (third highest globally) per one approach - Methodological improvements (e.g., Yao, 2024) incorporating direct survey measures indicate substantially lower estimates (around 20 percent of GDP) and a pronounced decline over time - If informality stems mainly from lack of good formal jobs (evidence suggests this is predominant in Georgia), focus should be on job creation rather than solely on stricter formalization measures - Sustained growth and targeted policies in specific sectors are expected to gradually reduce informality - Emigration (Box 4) — findings: - Emigration slowed but remains significant; averaged 100,000 people per year historically - Emigrants have increasingly moved to OECD countries for employment purposes, especially Western Europe (Germany, Italy, Spain, France) - Georgian emigrants in OECD countries are typically older and lower skilled with higher unemployment and inactivity rates; limited brain drain compared to peers - In 2020/21, 0 percent of working-age Georgian emigrants had low and another 30 percent had high educational attainment, while in Georgia 5 percent had low and 40 percent had high educational attainment (figures as presented in source) - Nearly 20 percent of emigrants were unemployed and over 0 percent inactive (not in the labor force) in 2020/21, similar to Georgia’s labor force statistics during the same period *Source: IMF staff summary of chapter content in the provided PDF content unit.* ### Box 4. Impact of Emigration on the Georgian Labor Market (Concluded) ### Box 4. Impact of Emigration on the Georgian Labor Market (Concluded) ### Demographic and labor-force impacts - Emigration has contributed to a declining workforce and an aging population, potentially hampering growth and budget finances. - The text states: "Georgia’s population has sta ili ed since 20 around . million, ut working-age population has declined by 5 percent, mainly due to outward migration, which could reduce labor supply and annual output by 2 percent." - The old age dependency ratio has risen in the past decade and is higher compared to peers, likely straining social welfare and pension systems; the "latest fiscal risks statement (2024) suggests aging costs remain manageable." ### Remittances and household effects - Emigration has led to large remittance inflows, boosting household incomes and FX funding. - Remittances have averaged around 15 percent of GDP in the past decade, similar to CCA peers but significantly higher than that of developing countries. - Remittances tend to be countercyclical and provided a financial buffer during downturns (e.g., 2020). - Micro-level impacts: - Remittances make up 40-45 percent of monthly income for receiving households. - Receiving households earn 25-30 percent more than others. - Receiving households have a 20 percent lower probability of employment. ### Return migration and skills transfers - Return migration has been significant, with potential gains from skill and knowledge transfers. - Since 2012, Georgian returnees have averaged two thirds of those emigrating. - Example: Following Russia’s invasion of Ukraine, many ethnic Georgians living in Russia moved back to Georgia along with Russian immigrants, contributing to high economic activity. ### Policy framework and authorities’ views - The net impact of emigration depends on policies. - Georgia’s Migration Strategy for 2021-30 aims to develop a comprehensive migration management system in line with EU standards and minimize negative and maximize positive effects of migration on its development. - Regular progress and impact assessments would help ensure the Strategy’s effectiveness. - Authorities’ actions noted (¶26): - Infrastructure projects to enhance the competitiveness of the Middle Corridor are a key strategic priority. - A nationwide school reauthorization program is underway to identify and address issues in the education sector. - Substantial progress on land registration should help raise agricultural productivity over time. - Authorities highlighted Georgia’s strong performance on governance metrics relative to peers and reiterated that fighting corruption remains a government priority. ### Staff appraisal — recent performance and outlook - Since 2021, real GDP growth has averaged over 9 percent annually, driven by a strong post-pandemic recovery and sustained expansion in ICT and transport services, supported by immigration, financial inflows, and transit trade linked to the war in Ukraine. - These trends boosted per capita income and reduced unemployment and poverty; inflation has remained low, aided by tight monetary policy and a strong lari, while public debt returned to pre- (text truncated). - Challenges persist: high structural unemployment, income inequality, outward migration, and informality. - Projections: - Real GDP growth is expected to reach 7.2 percent in 2025. - Growth is projected to converge to its medium-term potential of 5 percent. - Inflation is projected to remain near the 3 percent target. - The current account deficit is projected to stabilize around 5 percent of GDP. - Reserves are projected to improve gradually, supported by opportunistic FX purchases and a recovery in FDI. - The external position in 2024 was broadly in line with the level implied by fundamentals and desirable policies. ### Risks and scenarios - Risks are broadly balanced amid high global uncertainty and political tensions. - A resolution of the war in Ukraine may reverse some gains from migration and transit trade, but greater regional stability and reconstruction could offset these effects. - Direct exposure to global trade tensions is limited given Georgia’s low export share to the U.S. and exemptions for key products, but indirect effects could weigh on exports and raise import costs. - Potential offsets include lower oil prices and increased trade diversion. - Domestic political uncertainty and potential sanctions could dampen FDI, tourism, and pressure the lari; Georgia’s fiscal and financial buffers would help cushion adverse shocks. ### Monetary policy recommendations - The NBG should maintain a broadly neutral policy stance while remaining flexible and data driven. - Rationale: - Inflation near target; policy rate close to neutral; demand pressures easing. - Heightened global uncertainty and rising domestic food prices warrant a cautious approach to further easing. - Operational guidance: - Opportunistic reserve accumulation—while preserving exchange rate flexibility—should be prioritized. - Avoid actions that could undermine policy transmission and credibility (e.g., sustained deviations between interbank and policy rates). - Clearer communication on the balance of risks and policy rationale would enhance transparency and reinforce monetary policy effectiveness. ### Financial sector and NBG governance - Strengthening NBG governance and independence remains an important priority. - Progress made: filling board vacancies and appointing a governor. - Outstanding reforms: proposed amendments to enhance governance and financial autonomy in the NBG Law. - Recommended reforms: - Ensure a non-executive board majority. - Limit discretionary financial transfers to the government. - Further clarify succession rules for the governor. - Strengthen board member qualifications. - Adopt a collegial decision-making model. ### Fiscal policy and public finances - Fiscal policy is well calibrated; focus should be on strengthening revenue mobilization and improving spending efficiency. - Public debt is at prudent levels; a neutral medium-term fiscal stance—with deficits below 2.5 percent of GDP—would help stabilize the debt ratio well below the fiscal rule ceiling. - Revenue recommendations: - Advance tax policy and administration reforms to expand the tax base and streamline tax expenditures. - Strengthen a medium-term revenue strategy with planned reforms, implementation timelines, and expected yields. - Spending recommendations: - Enhance spending efficiency via better public investment management processes and spending reviews. - Better target social assistance to the most vulnerable households. - Improve the public works program and employment incentives. ### SOE, financial resilience, and structural reforms - Advancing SOE reform is essential to enhance performance, governance, and oversight to contain fiscal risks. - Ensure a strong oversight role for the Ministry of Finance. - Develop and implement an SOE reform roadmap. - Separate the state’s shareholder, regulatory, and policy functions to avoid conflicts of interest. - Strengthen corporate governance. - Financial sector priorities: - Further reduce dollarization. - Monitor rapid consumer loan growth and lari funding pressures. - Enhance macroprudential and crisis management frameworks. - Fully operationalize the resolution framework and strengthen deposit insurance by resolving remaining legal and operational issues. - Establish an effective supervisory framework for VASPs and develop a consolidated supervision framework for cross-border and nonbank activities. - Improve competition in financial services, including through open banking. - Structural reform priorities to raise growth potential and inclusivity: - Address high structural unemployment, low agricultural productivity, and skill gaps via improved vocational training, teacher quality, and targeted agricultural support. - Promote return migration, leverage remittances, and attract foreign talent to harness emigration benefits. - Continue infrastructure investment and regional integration to reduce transport and logistics costs and boost competitiveness. - Reinforce judicial independence, empower the Anti-Corruption Bureau, and ensure effective enforcement of asset declaration reforms in response to recent governance backsliding. *Source: Box 4. Impact of Emigration on the Georgian Labor Market (Concluded), accompanying IMF country report.* ### 36. Staff recommends that the next Article IV consultation take place on the standard 12- ### 36. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Social indicators - Absolute poverty has fallen in Georgia since the global financial crisis, while inequality has been more persistent. - Both poverty and inequality in Georgia remain higher than in CCA peers. - Social assistance coverage is adequate, driven by non-contributory pensions, but incidence is low among poorer segments, pointing to spending inefficiencies. - Georgia lags many of its CCA peers on both education spending and outturns. - Georgia has higher public health spending per capita but lags in human capital development compared to most peers. - Georgia has the highest total and youth unemployment rate in the CCA, and a large share of youth that remains inactive. ### Real sector developments - Growth remained strong in 2024, driven largely by ICT and transport services. - Consumption contributed increasingly to growth. - The unemployment rate is below and labor force participation is above pre-pandemic levels. - Real wage growth has slowed recently as labor demand eased toward the end of 2024. - Headline inflation increased above the NBG’s target, but core inflation remains at a lower level. - The lari has been broadly stable in both nominal and real effective terms, well above pre-war and pre-pandemic levels. ### External sector developments - The goods trade balance has improved recently with imports receding amid lower global oil prices. - Tourism revenue has rebounded in recent years, with potential for further recovery in the number of tourists towards pre-pandemic levels. - Net money transfers have stabilized, with lower flows from Russia offset by higher flows from other countries. - International reserves declined last year amid large FX sales, but the NBG has resumed FX purchases recently. - FDI and official flows have declined, partly offset by private inflows. ### Fiscal sector developments - Public debt has declined rapidly and now stands below pre-pandemic levels, with an increasing share in local currency. - This decline was driven by significant fiscal consolidation, robust growth, and a strong lari. - Financing needs have fallen below pre-pandemic levels, but the interest bill has risen amid tighter financial conditions. - Net public financial worth has improved due to reduced liabilities, despite a decline in deposits at the NBG. - Tax revenues have increased across all major categories, enabling the government to lower the deficit while maintaining growth in social and capital expenditures, as well as in wages and spending on goods and services. ### Financial sector developments - Credit growth stabilized since mid-2024, with higher GEL credit growth offset by lower FX credit growth. - Consumer and business credit slowed, while mortgage credit picked up. - NPLs have remained below pre-pandemic levels and bank profitability has remained robust, owing to strong net interest income. - The interest rate differential between lari and FX deposits has picked up recently. - Deposit dollarization has recently reversed, while loan dollarization has continued to decline. ### Key statistics and projections (selected, preserving source values) - Real GDP: 2020 -6.3; 2021 10.6; 2022 11.0; 2024 7.8; 2025 9.4; 2026 7.2; 2027 5.3; 2028 5.0; 2029 5.0; 2030 5.0 (annual percentage change). - Output Gap: 2020 -6.9; 2021 -2.7; 2022 0.8; 2024 0.8; 2025 2.3; 2026 2.3; 2027 1.3; 2028 0.0; 2029 0.0; 2030 0.0. - Nominal GDP (in billion of laris): 2020 49.8; 2021 60.7; 2024 80.9; 2025 91.9; 2026 102.5; 2027 111.7; 2028 121.5; 2029 131.9; 2030 143.4; (and 155.9 in later column). - Nominal GDP (in billion of U.S. dollars): 2020 16.0; 2021 18.8; 2024 30.8; 2025 33.8; 2026 36.7; 2027 39.2; 2028 41.4; 2029 43.6; 2030 46.1; 48.6 in later column. - GDP per capita (in thousand of U.S. dollars): 2020 4.3; 2021 5.1; 2024 6.8; 2025 8.2; 2026 9.1; 2027 9.9; 2028 10.6; 2029 11.2; 2030 11.8; 12.5 and 13.2 in later columns. - CPI, Period average: 2020 5.2; 2021 9.6; 2022 11.9; 2024 2.5; 2025 1.1; 2026 3.4; 2027 3.1; 2028 3.0; 2029 3.0; 2030 3.0. - Gross national saving: 2020 12.2; 2021 10.4; 2024 19.6; 2025 19.4; 2026 18.4; 2027 17.9; 2028 18.5; 2029 18.9; 2030 19.1. - Investment: 2020 24.6; 2021 20.7; 2024 24.1; 2025 25.0; 2026 22.8; 2027 22.4; 2028 23.1; 2029 23.6; 2030 23.9; 24.1 later. - Net lending / borrowing (percent of GDP): 2020 -9.2; 2021 -6.0; 2024 -2.2; 2025 -2.3; 2026 -2.3; 2027 -2.3; 2028 -2.3; 2029 -2.3; 2030 -2.2. - General government debt (percent of GDP): 2020 59.6; 2021 49.1; 2024 39.2; 2025 38.9; 2026 36.1; 2027 34.7; 2028 34.1; 2029 34.3; 2030 34.5; later 34.9 and 35.7. - Current account balance (in billions of US$): 2020 -2.0; 2021 -1.9; 2024 -1.1; 2025 -1.7; 2026 -1.5; 2027 -1.6; 2028 -1.8; 2029 -2.0; 2030 -2.1; later -2.2; in percent of GDP: 2020 -12.4; 2021 -10.3; 2024 -4.4; 2025 -5.6; 2026 -4.4; 2027 -4.4; 2028 -4.6; 2029 -4.8; 2030 -4.8; later -4.9 and -5.0. - Gross international reserves (in billions of US$): 2020 3.9; 2021 4.3; 2024 4.9; 2025 5.0; 2026 4.4; 2027 4.7; 2028 4.9; 2029 5.5; 2030 6.2; later 6.8 and 7.1. - Deposit dollarization (percent of total): 2020 61.4; 2021 59.9; 2024 56.1; 2025 50.7; 2026 52.7; 2027 52.1; 2028 51.9; 2029 51.7; 2030 51.4; later 51.2 and 51.0. - Credit dollarization (percent of total): 2020 55.7; 2021 50.9; 2024 45.0; 2025 44.5; 2026 42.9; 2027 42.9; 2028 42.5; 2029 42.1; 2030 41.7; later 41.3 and 40.9. - Financial Soundness Indicators (selected): Regulatory capital to risk-weighted assets (Dec 2022) 20.3; (Dec 2023) 21.8; (Dec 2024) 22.7; (Mar 2025) 22.1. Nonperforming loans to total gross loans around 1.5–1.8 across 2022–2025. Return on assets (ROA): 2022 values 3.1–3.8; 2023 values up to 4.3; 2024 values 3.7–4.3; 2025 Mar 3.7. - Banking sector key ratios: Loan-to-deposit ratio (overall) ranged from 118.0 (Mar 2022) to 102.2 (Dec 2022) to 109.7 (Jun 2024) and 109.7 (Dec 2024). Deposits in foreign exchange to total deposits ranged from 59.4 (Mar 2022) to 50.8 (Mar 2023) to 52.8 (Jun 2024). ### Fiscal tables and projections (high level) - 2024 revenue (in millions of GEL): 19,168; Taxes 17,056; Grants 266; Other revenue 1,846. - 2024 total expenditure (in millions of GEL): 20,770; Expense 15,625; Net acquisition of nonfinancial assets 5,146. - 2024 Net lending / borrowing (in millions of GEL): -1,601. - 2024 Nominal GDP (in millions of GEL): 72,860; General government debt (in millions of GEL): 28,538. *Source: National authorities, Haver, GEOSTAT, NBG, Ministry of Finance, and IMF staff calculations and estimates.* ### Annex I. Key Recommendations of the 2024 Article IV ### Annex I. Key Recommendations of the 2024 Article IV Consultation ### Fiscal Policy - Objective: Rebuild fiscal buffers and create room for productive spending under the fiscal rule. - Key recommendations: - Modest further fiscal adjustment in the medium term to build sufficient buffers under the fiscal rule. - Develop a medium-term revenue strategy and improve public investment management to underpin adjustment. - SOE reform to limit fiscal risks and enhance efficiency in line with EU principles. - Status of implementation (as reported): - Partial – The authorities have accumulated additional fiscal buffers. The fiscal deficit remained unchanged in 2024 compared to 2023, and public debt declined, with both indicators remaining below the fiscal rule limits. - The authorities published a Medium-Term Revenue Strategy in December 2024, but it "requires further strengthening." - Partial – SOE reform is ongoing. Pilots of dual MoE-MoF ownership have continued. However, "the draft SOE law is not aligned with the agreed reform strategy." The MoF’s financial oversight should continue to be strengthened. A diagnostic technical assistance mission is planned to assess the performance of the pilot and the authorities’ alternative reform proposals. ### Monetary and Exchange Rate Policy - Objective: Return inflation to target while preserving exchange rate flexibility and reserves. - Key recommendations: - Monetary policy normalization should proceed gradually and cautiously to ensure core inflation remains close to target. - Continue exchange rate flexibility and reserve buildup to guard against risks from capital inflows and sanctions. - Amend the NBG law to: (i) ensure a non-executive majority on the NBG’s oversight board and limit discretionary transfers to the government; and (ii) clarify and strengthen the NBG succession framework and board member qualification criteria (in line with IMF TA). - Status of implementation (as reported): - Partial – The NBG maintained an appropriate policy rate. However, in response to exchange rate pressures, it employed extensive FXI and then allowed the TIBR to deviate from the targeted policy rate. "The exchange rate was not allowed to act as an appropriate shock absorber." - Not implemented – The acting governor has been confirmed as governor, and the vacant board positions have been filled with qualified members, restoring a non-executive majority on the NBG’s oversight board. However, "a fundamental reform of the NBG law is needed to improve NBG governance in line with Fund TA recommendations." ### Financial Sector Policies - Objective: Ensure financial sector resilience amid capital inflows, virtual assets, and sanctions. - Key recommendations: - Maintain financial buffers and vigilance to guard against financial sector risks. - Address concentration and dollarization risks by improving competition in the banking system and strengthening macroeconomic policy frameworks. - Regulate and supervise virtual asset providers. - Status of implementation (as reported): - Partial – NBG policies have ensured that banks are well capitalized and liquid, with adequate loan loss reserves. - The NBG has started registering virtual asset providers, but regulation and supervision are pending. - Deposit dollarization has risen amid political uncertainty. Macroprudential measures mitigate concentration and dollarization risks, but further efforts are needed to enhance bank competition and policy frameworks. ### Structural Policies - Objective: Promote stronger, more inclusive, job-rich growth. - Key recommendations: - Infrastructure investments to foster economic diversification and regional connectivity. - Improve education and training, and boost agricultural productivity to address high unemployment and low rural labor force participation. - Implement judicial and anti-corruption reforms to improve competitiveness and the business environment. - Status of implementation (as reported): - Partial – Implementation and pace of land registration is described as "an impressive achievement" and is ongoing. - Educational reform continues through the government's Vision 2030 program. - There are "no substantial initiatives to address judicial or corruption issues in the country." ### Risk Assessment Matrix — Key Conjunctural and Structural Risks - Trade policy and investment shocks (High likelihood) - Impact: Medium. Higher trade barriers would have minimal direct impact given low exports to the US, but indirect global channels could cause ambiguous net effects. Negative outcomes expected if dollar appreciates, sovereign spreads widen, growth in major export destinations slows, commodity prices rise, or further sanctions are implemented. - Policy response highlights: - Allow flexible exchange rate to act as a shock absorber. - Maintain prudent monetary and fiscal policies and build buffers. - Tighten monetary policy if faced with heightened price pressures. - Allow automatic fiscal stabilizers and provide temporary and targeted support to the most vulnerable. - Utilize foreign exchange reserves to prevent disorderly depreciation. - Accelerate structural reforms. - Sovereign debt distress (High likelihood) - Impact: Medium. While a low-probability event given moderate public debt, sharp depreciation amid high dollarization and higher borrowing costs could harm growth and financial stability. - Policy response highlights: - Allow flexible exchange rate to act as shock absorber. - Recalibrate fiscal policy to comply with deficit and debt ceilings unless escape clause is triggered. - Reprioritize spending to support the most vulnerable. - Utilize foreign exchange reserves to prevent disorderly depreciation. - Tighter financial conditions and systemic instability (Medium likelihood) - Impact: Medium. Banks are well capitalized and liquid, but high dollarization means rapid depreciation could increase inflation expectations and threaten stability. - Policy response highlights: - Allow flexible exchange rate to act as shock absorber. - Tighten monetary policy and communicate commitment to inflation targeting. - Utilize foreign exchange reserves to prevent disorderly depreciation. - Reprioritize spending to provide targeted fiscal support. - Allow use of capital and liquidity buffers; adjust macroprudential measures; enforce provisioning rules; use strengthened resolution framework. - Regional conflict(s) (Medium likelihood) - Impact: High. Intensified conflicts or sanctions could lower tourism, trade, remittances, and investments while increasing depreciation pressures and inflation. - Policy response highlights: - Allow flexible exchange rate to act as shock absorber. - Utilize foreign exchange reserves to prevent disorderly market conditions. - Maintain tight monetary policy to keep inflation expectations anchored. - Accelerate diversification of trade markets and routes. - Commodity price volatility (Medium likelihood) - Impact: High. Rising global commodity prices would increase inflationary pressures and diminish purchasing power. - Policy response highlights: - Maintain tight monetary policy. - Reprioritize spending to provide targeted fiscal support to the most vulnerable. - Deepening geo-economic fragmentation (High likelihood) - Impact: Medium. De-globalization could disrupt trade routes and question Georgia’s logistics hub positioning. - Policy response highlights: - Allow exchange rate to adjust. - If inflation is under control, utilize monetary policy space to avoid persistent negative output gap. - Extend targeted measures by reprioritizing spending. - Intensify efforts to diversify trading partners. - Social discontent (Medium likelihood) - Impact: Medium. Political polarization and social tensions could cause disorderly lari depreciation and undermine reforms and external financing. - Policy response highlights: - Improve communication about economic policy and set a medium-term reform agenda. - Maintain commitment and ownership of reforms. - Utilize foreign exchange reserves to prevent disorderly depreciation. - Political risks (Medium likelihood) - Impact: Medium. Political instability or reform fatigue could undermine structural reforms and hurt investment and growth. - Policy response highlights: - Maintain macroeconomic policy discipline. - Strengthen social safety nets to protect the most vulnerable and ensure inclusive growth. ### Annex III. Sovereign Risk and Public Debt Sustainability Assessment - Overall assessment: - "The overall risk of sovereign debt distress is assessed to be low and government debt to be sustainable." - Key facts and projections: - Public debt is expected to remain broadly stable around "34–36 percent of GDP" with prudent fiscal policy and robust economic growth under the baseline scenario. - Public debt peaked at "around 60 percent of GDP" after the COVID-19 pandemic, declined rapidly to "36 percent of GDP at end 2024", and is projected to remain around that level through 2030 under the baseline. - The fiscal deficit is projected to remain modest at "around 2.3 percent of GDP in the medium-term", consistent with the fiscal rule and a neutral stance. - S&P affirmed Georgia's 'BB/B' ratings with a "stable outlook", while Moody’s maintained its "Ba2 rating but revised the outlook to negative" due to recent political developments. - Debt management strategy and measures: - Authorities aim to shift government debt portfolio toward a "65/35 external-to-domestic ratio" (objective). - Strategy resumed since 2022 after a pause in 2020. - Plan to finance upcoming infrastructure projects equally through domestic and external sources. - Target average time to maturity of "at least 5.5 years". - New domestic instruments introduced: "3-, 5-, and 7-year treasury bonds" with strong demand for longer maturities. - Since 2019, buyback operations have supported the strategy; buybacks and switch operations are expected to continue to improve maturity profile and reduce reliance on FX-denominated debt. - DSA summary: - Final assessments: Near term — Low; Medium term — Low; Long term — Low. Fan chart — Moderate; GFN — Low. - Sustainability assessment: "Sustainable." - Commentary: After a short-lived surge to "60 percent of GDP" in 2020, general government debt declined below 40 percent of GDP in 2022 and stood at "36.1 percent of GDP in 2024." Debt is expected to remain below 40 percent of GDP in the medium term, with fiscal deficits modest and in compliance with the fiscal rule. Over the longer run, reforms should continue to tackle risks from climate change mitigation and adaptation needs. *Source: Fund staff.* ### 1. Debt coverage in the DSA: 1/ ### 1. Debt coverage in the DSA: 1/ ### Debt coverage and consolidation - Chosen coverage: General Government (GG) — gross debt covers the General Government and includes debt incurred by the central government, as well as state and local governments. - Subsector inclusion (baseline): - Budgetary central government: Yes - Extra budgetary funds (EBFs): No - Social security funds (SSFs): No - State governments: Yes - Local governments: Yes - Public nonfinancial corporations: No - Central bank: No - Other public financial corporations: No - Commentary: There are no extra-budgetary units, as all agencies (LEPLs and NLEs) affiliated with ministries are included in the budget. There are no social security funds. - Reporting on intra-government debt holdings: table indicates zero consolidation entries across listed holders/issuers (all entries shown as 0). ### Instrument coverage, accounting and valuation (as reported) - Basis of recording and valuation categories referenced: - Non-cash basis / Cash basis - Nominal value - Face value - Market value (only traded debt securities have observed market values) - Instrument categories shown: Debt securities; Loans; IPSGSs; Currency & deposits; Other accounts payable (stock of arrears could be used as proxy in absence of accrual data). ### Public debt structure and composition (figures and commentary) - Debt by currency: Commentary: "The share of foreign currency debt is expected to decline to below 65 percent of GDP by 2027, in line with the authorities' debt management strategy to mitigate exchange rate risks." - Public debt by holder and governing law: figures presented for 2015–2033 with categories including External private creditors; External official creditors; Domestic other creditors; Domestic commercial banks; Domestic central bank; Domestic law; Foreign law ex. multilateral; Multilateral. - Debt by instruments and by maturity: charts show marketable vs nonmarketable debt and residual maturity broken into ≤ 1 year, 1-5 years, > 5 years; residual maturity reported as 6. years (as shown). ### Baseline scenario (Table 2: Georgia: Baseline Scenario; percent of GDP unless indicated) - Public debt levels and change: - Public debt: 36.1, 34.7, 34.1, 34.3, 34.5, 34.9, 35.7, 35.3, 34.9, 34.4, 34.0, n.a. (Actual 2024–2034 sequence as shown) - Change in public debt: -2.8, -1.4, -0.6, 0.2, 0.3, 0.4, 0.8, -0.4, -0.4, -0.5, -0.5, n.a. - Contribution of identified flows (percent of GDP): -1.2, -1.2, -0.6, -0.1, -0.1, 0.1, 0.5, 0.0, -0.2, -0.3, -0.1, n.a. - Primary deficit: 0.7, 0.5, 0.5, 0.5, 0.5, 0.5, 0.6, 0.8, 0.9, 0.9, 0.9, n.a. - Noninterest revenues: 28.0, 27.7, 27.8, 27.7, 27.6, 27.8, 27.8, 27.5, 27.5, 27.6, 27.6, n.a. - Noninterest expenditures: 28.6, 28.1, 28.3, 28.2, 28.1, 28.3, 28.3, 28.3, 28.4, 28.5, 28.5, n.a. - Automatic debt dynamics: -2.2, -1.8, -0.9, -0.7, -0.7, -0.7, -0.8, -1.0, -1.1, -1.2, -1.0, n.a. - Real interest rate and relative inflation: 0.7, 0.7, 0.9, 1.0, 0.9, 0.9, 0.8, 0.7, 0.6, 0.5, 0.7, n.a. - Real interest rate: 0.3, 0.3, 0.6, 0.6, 0.6, 0.6, 0.5, 0.4, 0.3, 0.3, 0.3, n.a. - Relative inflation: 0.3, 0.3, 0.3, 0.3, 0.3, 0.3, 0.3, 0.3, 0.2, 0.2, 0.4, n.a. - Real growth rate: -3.4, -2.4, -1.8, -1.6, -1.6, -1.7, -1.7, n.a., -1.7, -1.7, -1.7, -1.6... - Other identified flows and transactions: 0.3, 0.1, -0.3, 0.0, 0.2, 0.3, 0.7, 0.2, 0.0, 0.0, 0.0, n.a. - Contribution of residual: -1.6, -0.3, 0.0, 0.3, 0.4, 0.3, 0.3, -0.4, -0.2, -0.2, -0.4, n.a. - Gross financing needs (GFN): 5.5, 4.7, 6.0, 5.2, 6.2, 4.8, 5.7, 6.5, 5.5, 5.9, 6.3, n.a. - of which: debt service: 4.8, 4.2, 5.4, 4.7, 5.7, 4.3, 5.1, 5.9, 4.7, 5.2, 5.6, n.a. - Local currency: 2.6, 2.2, 2.3, 2.9, 3.9, 2.5, 3.4, 3.3, 3.2, 3.7, 4.2, n.a. - Foreign currency: 2.1, 2.0, 3.1, 1.8, 1.8, 1.8, 1.8, 2.6, 1.5, 1.5, 1.4, n.a. - Memo indicators: - Real GDP growth (percent): 9.4, 7.2, 5.3, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0 - Inflation (GDP deflator; percent): 3.8, 4.1, 3.5, 3.5, 3.5, 3.5, 3.5, 3.5, 3.5, 3.5, 3.5 - Nominal GDP growth (percent): 13.6, 11.5, 9.0, 8.7, 8.6, 8.7, 8.7, 8.7, 8.7, 8.7, 8.7 - Effective interest rate (percent): 4.7, 5.1, 5.4, 5.6, 5.4, 5.4, 5.2, 4.8, 4.5, 4.4, 4.3, n.a. - Staff commentary summary: - "Public debt is expected to hover around 35 percent of GDP over the medium-term mostly due to favorable interest-growth differentials and prudent fiscal policy." - "Gross financing needs are expected to increase to 6 percent of GDP, on average, over the medium term, but will remain manageable." ### Realism and risk diagnostics (Figure 3 and Figure 4 summaries) - Realism analysis: "Realism analysis does not point to major concerns: past forecast errors do not reveal any systematic biases and the projected fiscal adjustment and debt reduction are well within norms." - Debt-creating flows and forecast track record charts referenced for t+1, t+3, t+5 horizons and comparator groups. - Medium-term risk analysis outputs (selected indicator values): - Fanchart width: 50.6 - Probability of debt not stabilizing (pct): 47.1 - Terminal debt level x institutions index: 13.0 - Average GFN in baseline: 5.4 - Bank claims on government (pct bank assets): 7.2 - Change in claims on govt. in stress (pct bank assets): 0.2 - GFN financeability index: ... 4.3 (ellipsis indicates truncated/omitted figure) - Medium-term index (MTI) components reported with weights and normalized levels; overall commentary: "Of the two medium-term tools, the GFN Financeability Module suggests a low level of risk, while the Debt Fanchart Module indicates moderate level of risks. The latter is largely due to a relatively wide estimated fan width likely related to historical volatility." - Probabilities (stress detection metrics): - Prob. of missed crisis, 2025-2030 (if stress not predicted): 9.1 pct. - Prob. of false alarm, 2025-2030 (if stress predicted): 55.7 pct. ### Long-term risk analysis and climate scenarios (Figures 5a and 5b) - Large amortization and refinancing risk: - Commentary: "Over the long term, there are no significant risks associated with large amortizations for Georgia. Amortization payments are projected to peak in 2031 due to the assumed rollover of the Eurobond in 2025 with a five-year maturity." - In the event of a large amortization, GFN and public debt would remain at comfortable levels given proactive debt management, a strong investor base (particularly multilateral loans), a growing domestic market, and liquid assets held by the treasury. - Climate change modules: - Adaptation standardized module: adds costs of investment associated with climate change adaptation of 0.8 percent of GDP per year in the medium term and declining thereafter; suggests long-term debt sustainability is generally robust to additional spending related to climate adaptation. - Mitigation standardized module: assumes frontloading of 5.7 percent of GDP per year until 2038 and zero thereafter (default values per Staff Guidance Note on the SRDSF (2022)); such large upfront investments are not likely in Georgia. - Georgia’s 2030 Climate Change Strategy estimate cited in commentary: total budget of GEL 3.5 billion for the 10-year action plan (equivalent described as "a little over 0.3 percent of GDP"). - Overall: "While climate actions are expected to increase the gross financing needs and debt levels, they are projected to remain stable over the medium term." ### External sector assessment (Annex IV: selected findings) - Overall assessment (2024): "Georgia’s external position in 2024 was broadly in line with the level implied by medium-term fundamentals and desirable policy settings based on the results of the IMF’s EBA-lite current account model." - Key developments and metrics: - NIIP improved to -89 percent of GDP from -157 percent of GDP in 2020. - Official reserves: 77.3 percent of the ARA metric (USD 4.3 billion in 2024) down from 95.5 percent (USD 5 billion) in 2023. - Adjusted ARA metric (adjusting for the net liability position of banks): improves to 83.5 percent but remains below authorities’ desirable range of 120-130 percent during the projection period. - Policy implications and recommendations: - With reserves below the ARA threshold—even after adjusting for banks’ external assets—continued fiscal and strategic FX purchases by the NBG are warranted alongside limited FX sales to avoid disorderly market conditions. - Authorities should sustain structural reforms, including export and energy diversification, to enhance competitiveness through targeted infrastructure and institutional reforms. - Composition of foreign assets and liabilities (end-2024): - NIIP: -89.0 (% GDP) - Gross Assets: 52.3 (% GDP) - Debt Assets: 20.8 (% GDP) - Gross Liabilities: 141.2 (% GDP) - Debt Liabilities: 51.8 (% GDP) - Additional assessment points: - As of end-2024, FDI and loans accounted for 52 percent and 34 percent of gross liabilities, respectively. - The share of debt in total liabilities declined from nearly 50 to 37 percent over the past five years. - Private external debt declined from 66.5 percent of GDP to 27.1 percent of GDP. - External general government debt declined by nearly 20 percentage points of GDP over the period, reaching 25.2 percent by end-2024. - Non-bank corporate external debt decreased further as FDI shifted towards equity; only 11 percent of gross FDI is now in the form of debt. - Bank external debt increased by nearly US$3.7 billion, mostly in short-term currency and deposits, offset by faster accumulation of external assets (debt securities and short-term deposits abroad). - Outlook: NIIP expected to remain negative to finance current account deficits covered by longer-term flows; favorable composition (FDI, equity, longer-term maturities) helps mitigate risks but sizable negative NIIP remains a vulnerability and underscores the need for continued accumulation of reserves. *Source: 1geoea2025001-source-pdf - 1. Debt coverage in the DSA: 1/* ### 12.4 percent of GDP to a range of 4.5 to 5.5 percent of GDP over the past five years. The ### GEORGIA ### Current Account and External Balance - CA deficit narrowed to 4.4 percent of GDP in 2024 from 5.6 percent of GDP in 2023 on account of lower import cost (partly due to lower energy costs), and an improvement in primary income supported by easing short-term obligations and lower interest rates. - CA deficit is expected to remain broadly stable at 4.4 percent of GDP in 2025 supported by stable energy prices and continued strength in exports, supported by tourism and favorable dynamics in Georgia’s commodity exports, including gold. - Over the medium-term, the CA deficit is expected to stabilize around 5 percent of GDP on the back of continued prudence in the fiscal stance, resilience of tourism receipts, further gains in services exports, and economic growth reverting to potential. - Improvement in the external balance reflects: - near doubling of exports driven by a surge in re-exports of goods since the start of the war in Ukraine; - a strong recovery in tourism and other services (especially in the ICT and including in the financial sectors); - a pick-up in remittances from abroad since the start of the conflict; - higher savings and a prudent fiscal stance that has shifted investment toward the private sector. - Assessment (CA approach, EBA-lite methodology): - Cyclically-adjusted CA balance stands at -4.1 percent of GDP. - 2024 norm is -4.9 percent of GDP. - CA gap corresponds to 0.8 percent of GDP (positive gap against the 2024 norm). - The growth differential with the rest of the world and the sizeable NIIP as percent of GDP implies about a 2 percent of GDP wider cyclically adjusted CA deficit norm than observed. - A moderate positive policy gap emerges due to the smaller fiscal adjustment needed in the medium-term compared to the rest of the world. - On the net, the CA gap corresponds to a modest REER undervaluation of 2.1 percent. ### Real Exchange Rate (REER) and Competitiveness - Background: - Since 2020, the lari has been appreciating steadily in real terms by about 27.4 percent (nominally by 13 percent) on account of higher export proceeds, a surge in war-related financial inflows, and inflation differentials. - In 2024 the lari depreciated in real terms by 5.3 percent as remittances and net financial flows dropped markedly, amid deteriorating sentiment. - Assessment: - The REER approach suggests an overvaluation of 7.7 percent. - Although the CA approach (suggesting a modest undervaluation) is preferred in the bottom-line assessment, the REER model results should not be dismissed. - The REER model requires a more depreciated REER for countries with large negative NIIP that need to improve competitiveness and accumulate precautionary buffers. - Policy guidance: - Authorities are advised to sustain their reform agenda to enhance competitiveness, raise net private savings, accumulate further buffers and maintain exchange rate flexibility. ### Capital and Financial Accounts: Flows and Policy Measures - Background (2020–2024 trends): - Financial account surplus peaked at 7.7 percent of GDP in 2022. - In 2024 the financial account registered a deficit of 1.7 percent of GDP. - FDI dropped to 2.7 percent of GDP in 2024 from 5.2 percent of GDP in 2023 as large projects wound down. - FX asset accumulation increased from 1.1 to 4.4 percent of GDP reflecting F conversion of deposits due to uncertainty. - NBG raised reserve requirements on foreign currency liabilities by 5 percentage points, contributing to further FX asset accumulation by commercial banks. - Assessment and outlook: - The negative overall balance in 2024 reflects normalization of FDI and sharp increase in accumulation of financial assets, partly to improve banks’ FX liquidity and the buffers of the private sector (reflected in the improvement of the NIIP) even as remittances and non-resident deposits declined. - Going forward, financial flows are expected to stabilize in line with CA financing needs, supported by FDI, external borrowing and the continued reversal of dollarization, especially as peak uncertainty from 2024 is normalizing in support of de-dollarization. - Maintaining exchange rate flexibility while enhancing external competitiveness will be key to mitigate risks from potential capital outflows and moderation of FDI, while also easing financing pressures by lowering the import demand typically associated with FDI. ### FX Intervention and Reserves Level - Background: - Gross international reserves (GIR) fell to US$4.4 billion in 2024, down from a peak of US$5.0 billion in 2023. - Drop reflects slowing remittances, higher net payment by commercial banks (which also substantially increased their debt securities abroad), government debt repayments, and net FX sales by the NBG of USD475 million. - Bilateral and IFI inflows decreased by 79 percent to USD 95.5 million—the lowest level in 5 years. - ARA metric coverage decreased from 95.5 percent in 2023 to 77.3 percent in 2024, partly reflecting an increase in non-resident short-term FX deposits which raised the stock of short-term debt considered under the ARA framework. - If the ARA metric were adjusted to reflect net short-term liabilities (instead of gross), the coverage would increase to 83.5. - Targeted prudent level by the authorities is 120-130 (percent of the ARA metric). - Import cover dropped from 3.2 to 2.6 months. - Projections and policy recommendations: - Staff projects GIR to rise to USD 4.68 billion in 2025, reaching 81 percent of the ARA metric supported by a stable current account deficit and sustained financial flows. - Over the medium-term, reserve coverage is projected to increase to around 100 percent in line with the authorities’ objective to increase FX buffers and the assumption of resilient external receipts from emerging sectors, including tourism and sources of new investments and borrowing in planned infrastructure expenditure. - The NBG should continue strategic FX purchases and limit FX sales only to prevent disorderly market conditions, consistent with IPF guidance. ### Annex V — Key Recommendations of the 2021 FSSA (selected highlights) - Financial Stability and Macroprudential Policy: - 1: Encourage banks to retain earnings until pandemic-related uncertainties subside and pre-pandemic capital buffers are restored. Status: ST. Note: All banks have restored these buffers since the beginning of 2024. - 2: Implement Basel regulation on banks’ large exposures as planned. Status: ST. Orders of the President of the NBG introduced to implement Basel regulation on banks’ large exposures. - 3: Review calibration of macroprudential tools aimed at reducing dollarization, including via impact assessments. Status: ST. Methodology for calculating the risk weight was changed in March 2023. - 4: Strengthen communication of the impact and rationale of macroprudential policy decisions to stakeholders. Status: ST. Decisions of the Financial Stability Committee published and financial stability report published annually. - 5: Enhance public communication to clarify the objectives of foreign exchange interventions. Status: I. The NBG has adopted and published the FXI strategy. - Banking Supervisory Oversight and Safety Nets: - 6–9: Formalize governance of supervisory operations; review GRAPE scoring; carry out in-depth assessments of banks’ governance and risk management; require systemic banks to incorporate internal stress testing. Status: I/ST. GRAPE handbook and procedures introduced; ICAAP and ILAAP submissions required; supervisory stress testing conducted in 2023. - 14–16: Implement prompt corrective action framework; prepare to implement bridge banks; prepare crisis contingency plans and adopt regular testing programs. Status: I/ST. Guidelines and playbook developed; working groups and contingency plan drafts in progress. - AML/CFT, Capital Markets, and Financial Infrastructure: - 10: Strengthen regulation/supervision for gaming sector, VASPs, and real estate agents. Status: MT. Legislative framework for Virtual Assets and VASPs effective January 1, 2023; registration rules and AML/CFT-compliant measures adopted. - 12–13: Continue risk-based supervision for market participants and ensure sanctions for market abuse are sufficiently punitive. Status: ST/I. Risk-based supervision methodology for securities market elaborated in 2024; updated draft sanctions rule developed. - 17–18: Develop procedures for oversight of payment systems; complete self-assessments of two Central Securities Depositories. Status: I/I. Legal acts adopted in November 2023; self-assessments completed in 2022 and implementation overseen. - Access to Finance and Capital Markets Development: - 21–24: Commit to predictable schedule for government bond issuance; enact legislation for covered bonds; define roadmap for fintech and financial inclusion; establish online collateral registry. Status: I/ST. Law on Mortgage Covered Bonds adopted November 29, 2022; online collateral registry available at my.gov.ge (in Georgian); Fintech Development Strategy drafted. *Source: INTERNATIONAL MONETARY FUND — GEORGIA (excerpt).* ### Annex VI. Data Issues ### Annex VI. Data Issues ### Data Adequacy Assessment — Table 1: Georgia: Data Adequacy Assessment Rating - Overall inter-sectoral median rating: A - Questionnaire Results (median rating across sectors): A A A A A A A - Detailed questionnaire results — summary by data quality characteristic and sector: - Coverage: A A A A A - Granularity: - National Accounts: A - Government Finance Statistics (top cell — government operations): A - Government Finance Statistics (bottom cell — public debt statistics): A - Prices: A - External Sector Statistics: A - Monetary and Financial Statistics (top cell — MFS): A (MFS) - Monetary and Financial Statistics (bottom cell — Financial Soundness Indicators): A A (FSI) - Consistency: - National Accounts: A - Prices: B - Government Finance Statistics: B (FSI) - External Sector Statistics: A - Monetary and Financial Statistics: A - Frequency and Timeliness: A A A A A - Legend used in assessment: - A The data provided to the Fund is adequate for surveillance - B The data provided to the Fund has some shortcomings but is broadly adequate for surveillance - C The data provided to the Fund has shortcomings that somewhat hamper surveillance - D The data provided to the Fund has serious shortcomings that significantly hamper surveillance ### Rationale for Assessment and Sectoral Notes - Staff assessment: - The data available in all sectors are of high quality and timely. - Minor shortcomings remain in external and financial sector monitoring. - Trade volume and price data could be provided at a monthly frequency (currently available quarterly). - Consistency across financial sector data sources and FSI metadata could be further improved. - Changes since the last Article IV consultation (AIV 2024): - Aggregate ratings remain unchanged except: - Upgrade in monetary and financial sector data, particularly FSI granularity, following an IMF TA on FSI data and metadata in FY2025. - Improved granularity of national accounts data with timely publication of chain linked quarterly GDP by expenditure components. - Corrective actions and capacity development priorities: - Improve institutional sector accounts, including: - Developing annual non-financial sector accounts. - Estimating the non-observed economy (ongoing STA CD support). - Enhance external trade statistics: - Provide volumes and price external trade data at a monthly frequency (currently available quarterly). ### Use of Alternative Data Sources in Article IV - Data used in lieu of or to supplement official statistics: - Corruption perceptions: Transparency International. - Rule of law measures: World Justice Project. - Vacancy data: online jobs board (jobs.ge). - Informality measures: World Bank Informal Economy Database. - Social indicators (poverty, inequality, unemployment, social spending) compared to CCA peers: World Bank (WDI, ASPIRE) and World Health Organization. - Some emigration data: OECD Emigration Database and the Russian Statistical Bureau. - Other data gaps: - Staff do not see any key data gaps outside of those identified in the questionnaire. ### Data Standards Initiatives — Table 2 - Georgia subscribes to the Special Data Dissemination Standard (SDDS) since May 2010 and publishes the data on its National Summary Data Page. - The latest SDDS Annual Observance Report is available on the Dissemination Standards Bulletin Board. ### Table of Common Indicators Required for Surveillance — Table 3 - Timeliness note: Table of Common Indicators reported as of June, 2025 (table contents not reproduced here). ### Relevant Fund Relations and Operational Statistics (selected figures and dates) - Membership Status: - Date of membership: May 5, 1992, Article VIII. - General Resources Account (SDR Million; Percent of Quota): - Quota 210.40 100.00 - Fund Holdings of Currency 599.88 285.11 - Reserve Tranche Position 0.02 0.01 - SDR Department (SDR Million; Percent Allocation): - Net Cumulative Allocation 345.62 100.00 - Holdings 346.34 100.21 - Outstanding Purchases and Loans: - Extended Arrangements 389.50 185.12 - Latest Financial Arrangements (type, approval date, expiration date, amount approved (SDR million), amount drawn (SDR million)): - Stand-By June 15, 2022 June 14, 2025 210.40 0.00 - EFF April 12, 2017 April 11, 2021 484.00 484.00 - Stand-By July 30, 2014 April 11, 2017 100.00 80.00 - Projected Payments to the Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Forthcoming 2025 2026 2027 2028 2029 - Principal 59.42 80.67 78.17 68.17 58.17 - Charges/Interest 6.79 11.29 8.40 5.67 3.25 - Total 66.20 91.95 86.56 73.83 61.42 - Safeguards assessments: - Most recent safeguards assessment conducted in 2022. - Assessment found the safeguards framework of the NBG generally strong; independent oversight constrained by an executive majority owing to vacancies in non-executive positions. - NBG implemented most 2022 recommendations, including filling vacancies at the NBG Board. - Proposed amendments to strengthen governance and financial autonomy in the NBG Law remain outstanding. - NBG’s latest audited financial statements are published for the year ending December 31, 2024. - Exchange rate arrangements: - De-jure and de-facto arrangement classified as floating. - NBG intervenes through foreign exchange auctions and Bloomberg’s BMatch platform; interventions aimed at accumulating international reserves or smoothing excessive volatility. - Results of auctions posted same day; BMatch results posted with a one-month delay. - Georgia accepted obligations under Article VIII Sections 2, 3, and 4 of the IMF’s Articles of Agreement. - Program engagement: - A 3-year SBA approved on June 15, 2022 with total access to SDR 210.4 million (100 percent of quota); treated as precautionary. - First (and only) review of the SBA completed on December 21, 2022. - Program expired on June 14, 2025. - Article IV consultation: - The 2024 Article IV consultation concluded on May 13, 2024. - FSAP participation: - 2021 FSAP took place during virtual missions in January-February and May-June 2021. - Technical assistance (areas listed, summary): - Fiscal, Monetary/Financial, Legal, Statistics, Training (detailed topics described in the source). - Resident Representative: - Mr. Andrew Jewell took up his post in August 2023. *Source: Annex VI. Data Issues, staff-prepared informational annex (selected tables and notes) as provided in the source PDF.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1geoea2025001-source-pdf.pdf_