## _cr05210

## Source details

**Canonical URL:** [_cr05210](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05210.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05210.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05210.pdf.json)

---

### Overview
- EDPRP (Economic Development and Poverty Reduction Program) presented to IDA and IMF Executive Boards in September 2003 focused on rapid and sustainable growth and poverty reduction.
- New government after November 2003 “Rose Revolution” prioritized fighting corruption and improving governance.
- Macroeconomic improvements noted: timely payment of social transfers and public sector wages reestablished; wage and pension arrears cleared to a significant degree.
- APR of January 2005:
  - Confirms government commitment to EDPRP objectives.
  - Provides implementation results for the first year and highlights new strategy elements.
- Macroeconomic performance in 2004 and early 2005:
  - Robust real GDP growth (no numerical value provided in the text).
  - 12-month inflation rose to 10.4 percent in April 2005.
  - Gains in tax collection provided additional resources for social and infrastructure needs.
- Support instruments:
  - IDA through a Reform Support Credit (RSC).
  - IMF through an arrangement under the Poverty Reduction and Growth Facility (PRGF).

### Poverty diagnosis
- Reported poverty trends (APR nine-month estimate for 2004):
  - Poverty headcount index fell from 54.5 percent in 2003 to 52.3 percent in 2004.
  - Rural poverty fell from 56.2 percent to 53.4 percent.
- Main proximate cause of increased poverty during 2001–03: non-payment of social transfers and public sector wages, particularly in rural areas.
- Drivers of 2004 poverty decline: strengthened macroeconomic performance, timely payment of social transfers and public sector wages, and significant clearance of arrears.
- Methodology concerns and recommended actions:
  - Current poverty developments are tentative due to ongoing adjustments to poverty measurement methodology under the Programmatic Poverty Assessment (PPA).
  - Recommendations:
    - Establish comparability of the Household Budget Survey over time.
    - Revise the equivalence scale coefficient upwards in line with international comparators.
    - Adopt an appropriate poverty line that better reflects current realities.
  - Specific methodological notes:
    - The official poverty line (defined in early 1990) and the revised official line are at best outdated and too high.
    - The alternative poverty line used by SDS needs methodological clarification and possible adjustment in line with the basic needs approach, including seasonal and regional price differences.
    - Develop comparable consumption aggregates to aid poverty comparisons over time.

### Macroeconomic policies and framework
- Staffs support APR macroeconomic policy thrust.
- Fiscal performance:
  - 2004 turnaround was especially impressive; government was able to spend more than envisaged in the original budget for the first time since independence.
  - Strengthened tax enforcement enabled clearance of bulk of wage and pension arrears accumulated under the previous administration.
  - Note: 2004 government spending in some key sectors, including education, was lower than targeted in the EDPRP because funds were redirected to defense spending.
  - Need to strengthen links between poverty reduction strategy and actual government spending.
- Tax and expenditure measures:
  - Tax reform introduced in January 2005 intended to support fight against evasion.
  - Poverty-reducing expenditure measures include increase in minimum pensions effective January 1, 2005 and proposed introduction of a targeted poverty benefit in the second half of the year.
  - Authorities may consider higher spending on health and education, provided adequate budget resources are mobilized.
- Inflation and monetary policy:
  - APR inflation target: 5–6 percent.
  - 12-month consumer price inflation: 10.4 percent in April 2005.
  - Recommendation: tighten monetary policy and exercise fiscal restraint to meet the 5–6 percent target.
  - Additional suggestions: enhance exchange rate flexibility and strengthen the menu of monetary policy instruments.
- Macroeconomic framework and external risk:
  - Framework generally in line with staff projections but needs further elaboration of underlying policies.
  - Medium-term indicators of foreign indebtedness have much improved since new government took office, reducing a major risk to poverty reduction strategy implementation.
- Trade policy:
  - Under WTO accession, import tariff bands reduced from 21 in 2004 to 16 as of January 2005.
  - Recommendation: consider further reduction in number of tariff bands and in the maximum tariff rate.

### Public expenditure management
- Staffs support further improvements; IMF Fiscal Affairs Department mission found vast improvements.
- Budget Systems Law (effective January 1, 2004):
  - Abolished system of protected items, facilitating reorientation of spending to new priorities.
  - Stipulates annual budget laws be considered within a Medium-Term Expenditure Framework (MTEF), which is under preparation.
- Recommendations and targets:
  - Complete a government strategy for building line ministry capacity for program budgeting, multi-year planning, and identification of performance indicators in 2005.
  - Pilot ministries for this strategy: health, education, and agriculture.
- Treasury management:
  - Introduction of a treasury single revenue account in April 2004.
  - Authorities aim to complete transition to a treasury single account for all central government revenues and expenditures in 2005.
  - Staffs encourage expanding treasury coverage to local governments over the next few years.

### Sectoral policies
- Education:
  - Passage of two laws on general and higher education to increase accountability and quality responsibilities for schools and institutions.
  - Anticipated changes to financing of higher education, teacher training, curriculum development, and assessment/examination methods.
  - Staff observation: progress on efficiency improvements not as great as anticipated; need to consider personnel/facility rationalization and resources required to implement changes.
  - MTEF-required sectoral strategy and expenditure breakdowns seen as essential to operationalize the education program.
- Health:
  - Government focus on revision of the basic benefit package, primary health care needs, and resource availability.
  - Revisions underway: estimated cost of treatment, reimbursement rates, and medical standards in public facilities.
  - Measures addressing maternal and child health care issues adopted during 2005.
  - Staff concerns: deterioration in health outcomes (maternal and early childhood mortality, prevalence of vaccine preventable diseases, tuberculosis cases).
  - Staff recommendations:
    - Continue revision of basic benefit package.
    - Increase public spending for health under the MTEF.
    - Proceed with implementation of the hospital optimization program.
    - Clear all remaining arrears in the health sector in 2005.
    - Subsequent APRs should provide more information on health financing changes (e.g., canceling of earmarked health payroll tax, status of State United Social Insurance Fund) and results of maternal and child health measures such as the voucher program and updates on tuberculosis and HIV/AIDS.
- Energy:
  - Payment collections for electricity substantially increased outside Tbilisi during 2004.
  - Government stepped up funding, passed legislation to protect energy utilities during bankruptcy rehabilitation, and is cooperating with consultants on power sector debt solutions.
  - Sector remains in crisis: continued insolvency and poor service in power and gas.
  - Priorities: address financial flows, develop plan for technical rehabilitation of transmission systems, make difficult decisions on collections, tariffs, debt overhang, and investments.
  - Privatization of utility companies under preparation could be useful but not a substitute for government action on core problems.
- Transport:
  - Recommend in-depth analysis of railways’ technical condition, market demand characteristics, and private sector participation.
  - Commend liberalization of motor transport and air traffic service improvements since Rose Revolution.
  - Needs: revise civil aviation licensing law; examine organization, pricing, and financing of Air Traffic Control; improve airport management and traffic safety.
  - Maritime: pursue landlord port concept development at Poti and Batumi.
  - Roads: RDMED embarked on rehabilitation program; road sector budget doubled—prioritization should be based on engineering and economic considerations.
- Fiscal decentralization and local governments:
  - Recent accomplishments: improvements in local budget revenue structure under new tax code; ratification of the European Charter on Local Self-Government; adoption of Law on Transfer of State Properties to local governments.
  - Concern: draft Local Budget law submitted in September 2004 was not aligned with World Bank technical advice and provides little information on proposed local revenue size, degree of local discretion, and ability to raise own-source revenues.
- Agriculture and irrigation:
  - APR suggests moves toward deregulation; staffs recommend orderly, measured deregulation consistent with WTO requirements and public safety.
  - Deregulation will require legal/regulatory reform, retraining of monitoring staff, effective engagement of private service providers, and improved information management across regulatory agencies.
  - Concerns about irrigation and drainage sub-sector sustainability:
    - Service fees remain very low.
    - Ministry of Agriculture reducing budget support for Melioration System Management Department by about 40 percent.
    - Government decision to shift all collected service fees to the central budget (with no clear arrangement for return to service areas) could discourage fee payment and jeopardize operation and maintenance.
- Environment:
  - APR lists activities but provides limited information on results.
  - Recommendation: future APRs should assess impact of environmental protection activities on environment health, natural resource use patterns, and immediate livelihoods of the poor.

### Transparency and accountability
- Notable anti-corruption and governance actions:
  - Prosecution of high-profile former officials suspected of corruption.
  - Drastic retrenchment in civil service accompanied by a rise in remunerations.
  - Visible governance improvements including sharp reduction in extortion by traffic police.
  - Approval of a new tax code reducing number of taxes and tax rates.
  - Adoption of a new law on financial amnesty.
- Staff recommendations and outstanding challenges:
  - Authorities encouraged to accord due process to individuals and enterprises charged with corruption.
  - Remaining challenges to improve business climate and sustain growth:
    - Provide reliable electricity supplies to all paying customers.
    - Develop deeper financial markets and a credit culture.
    - Simplify procedures for business registration, licensing, and inspection.
  - APR identifies these challenges and contains concrete reform proposals.

### Financial sector and related reforms
- APR discusses lowering of minimum reserve requirements for local currency deposits in 2004.
- Additional results achieved under the EDPRP not reported in the APR:
  - Passage of anti-money laundering legislation and the initial stage of its implementation.
  - Introduction of internal control systems in commercial banks.
- Staff advice to the authorities:
  - Implement measures to enhance creditor and property rights.
  - Establish a Credit Bureau.
  - Develop the legislative framework for housing finance.
  - Improve risk management.

### Privatization
- EDPRP highlights government desire to accelerate privatization while adhering to transparency and fair treatment.
- APR does not elaborate on adherence to these principles in recent privatizations; staffs believe more extensive advertising would have increased transparency.
- Staffs consider the overall process broadly acceptable and support government effort to establish a web site to advertise the small and medium SOEs selected for privatization.
- Examples of entities involved in recent privatization operations:
  - The Ocean Shipping company
  - The Chiaturmanganetsi mining complex
  - The Tkibulnakhshiri coal mine
  - The Vartsikhe power station
  - The Tbilaviamsheni aircraft company
  - The Krtsanisi government residence

### Participation, coordination, and donor support
- Civil society engagement and consultation:
  - Authorities commended for continued efforts to deepen civil society consultation and participation during EDPRP implementation.
  - New government drew many top officials from civil society organizations that had participated in EDPRP preparation and maintained close, though informal, ties to these organizations.
  - Government engaged in broad-based consultations on key reform initiatives, notably tax and education reforms.
  - Key stakeholders included in efforts to develop medium-term strategic priorities; a joint commission with the business community is being completed to discuss economic policies.
  - Government sought close involvement of civil society in preparation of the APR.
- Donor coordination and pledges:
  - The poverty reduction strategy has been an important vehicle for donor coordination.
  - The Donors’ Conference in June 2004, co-sponsored by the World Bank and the European Commission, produced aid pledges in excess of US$1.0 billion for the three year period 2004–06.
  - Government consultations with donors continued at the sectoral level, notably on reforms of the revenue collection and budget management systems of the Ministry of Finance, and on the situation in the energy sector.
  - Two meetings were held with donors on preparation of the progress report, leading to a high degree of donor coordination in implementation of assistance programs.

### Monitoring and capacity
- Monitoring of the poverty reduction strategy’s implementation can be strengthened; several issues related to poverty monitoring itself were identified.
- EDPRP emphasizes monitorable goals and indicators, but concerns were raised in the JSA over institutional capacity constraints to prioritize and measure these goals.
- Staffs are encouraged by:
  - The recommended focus on capacity building.
  - The more systematic prioritization being undertaken with the ongoing strategic framework exercise.
  - The stated objective of moving to program budgeting during the next couple of years.
- Expected outcomes:
  - Development of specific measurable interim targets to guide policy makers and society in identifying program areas proceeding well and those needing adjustment.
  - Need for government to work with the donor community to assure careful monitoring and reporting of the utilization of aid flows.

### Conclusion and challenges
- Overall assessment:
  - Implementation of Georgia’s poverty reduction strategy over the past year has been successful, owing in large part to an impressive improvement in the public finances.
  - Authorities have taken bold steps to tackle corruption, in keeping with their intention to consolidate democracy and improve the business climate.
  - Participation of stakeholders in the poverty reduction strategy process has been satisfactory.
- Four challenges as the Government strengthens strategic focus and implementation of its poverty reduction strategy:
  (i) Strengthen links between the poverty reduction strategy and annual government budgets by timely development of a Medium-Term Expenditure Framework aligned with the strategy, and by ensuring that the Ministry of Finance has a key role in implementing and further developing the poverty reduction strategy (a concern noted in the last JSA);
  (ii) Strengthen the growth basis for the strategy through:
    - Construction of a financially-viable power grid with reliable supply of electricity to all regions of Georgia;
    - Expediting privatization in a transparent and fair manner;
    - Adequate resource allocations for health and education sectors;
  (iii) Strengthen social protection through rapid progress with a targeted social safety net; and
  (iv) Promote governance and public service delivery improvements through the further empowerment of civil society.

*Source: _cr05210 - Section 2*

### Section 1

### _cr05210 - Section 1

### Overview
- EDPRP (Economic Development and Poverty Reduction Program) presented to IDA and IMF Executive Boards in September 2003 focused on rapid and sustainable growth and poverty reduction.
- New government after November 2003 “Rose Revolution” prioritized fighting corruption and improving governance.
- Macroeconomic improvements noted: timely payment of social transfers and public sector wages reestablished; wage and pension arrears cleared to a significant degree.
- APR of January 2005:
  - Confirms government commitment to EDPRP objectives.
  - Provides implementation results for the first year and highlights new strategy elements.
- Macroeconomic performance in 2004 and early 2005:
  - Robust real GDP growth (no numerical value provided in the text).
  - 12-month inflation rose to 10.4 percent in April 2005.
  - Gains in tax collection provided additional resources for social and infrastructure needs.
- Support instruments:
  - IDA through a Reform Support Credit (RSC).
  - IMF through an arrangement under the Poverty Reduction and Growth Facility (PRGF).

### Poverty diagnosis
- Reported poverty trends (APR nine-month estimate for 2004):
  - Poverty headcount index fell from 54.5 percent in 2003 to 52.3 percent in 2004.
  - Rural poverty fell from 56.2 percent to 53.4 percent.
- Main proximate cause of increased poverty during 2001–03: non-payment of social transfers and public sector wages, particularly in rural areas.
- Drivers of 2004 poverty decline: strengthened macroeconomic performance, timely payment of social transfers and public sector wages, and significant clearance of arrears.
- Methodology concerns and recommended actions:
  - Current poverty developments are tentative due to ongoing adjustments to poverty measurement methodology under the Programmatic Poverty Assessment (PPA).
  - Recommendations:
    - Establish comparability of the Household Budget Survey over time.
    - Revise the equivalence scale coefficient upwards in line with international comparators.
    - Adopt an appropriate poverty line that better reflects current realities.
  - Specific methodological notes:
    - The official poverty line (defined in early 1990) and the revised official line are at best outdated and too high.
    - The alternative poverty line used by SDS needs methodological clarification and possible adjustment in line with the basic needs approach, including seasonal and regional price differences.
    - Develop comparable consumption aggregates to aid poverty comparisons over time.

### Macroeconomic policies and framework
- Staffs support APR macroeconomic policy thrust.
- Fiscal performance:
  - 2004 turnaround was especially impressive; government was able to spend more than envisaged in the original budget for the first time since independence.
  - Strengthened tax enforcement enabled clearance of bulk of wage and pension arrears accumulated under the previous administration.
  - Note: 2004 government spending in some key sectors, including education, was lower than targeted in the EDPRP because funds were redirected to defense spending.
  - Need to strengthen links between poverty reduction strategy and actual government spending.
- Tax and expenditure measures:
  - Tax reform introduced in January 2005 intended to support fight against evasion.
  - Poverty-reducing expenditure measures include increase in minimum pensions effective January 1, 2005 and proposed introduction of a targeted poverty benefit in the second half of the year.
  - Authorities may consider higher spending on health and education, provided adequate budget resources are mobilized.
- Inflation and monetary policy:
  - APR inflation target: 5–6 percent.
  - 12-month consumer price inflation: 10.4 percent in April 2005.
  - Recommendation: tighten monetary policy and exercise fiscal restraint to meet the 5–6 percent target.
  - Additional suggestions: enhance exchange rate flexibility and strengthen the menu of monetary policy instruments.
- Macroeconomic framework and external risk:
  - Framework generally in line with staff projections but needs further elaboration of underlying policies.
  - Medium-term indicators of foreign indebtedness have much improved since new government took office, reducing a major risk to poverty reduction strategy implementation.
- Trade policy:
  - Under WTO accession, import tariff bands reduced from 21 in 2004 to 16 as of January 2005.
  - Recommendation: consider further reduction in number of tariff bands and in the maximum tariff rate.

### Public expenditure management
- Staffs support further improvements; IMF Fiscal Affairs Department mission found vast improvements.
- Budget Systems Law (effective January 1, 2004):
  - Abolished system of protected items, facilitating reorientation of spending to new priorities.
  - Stipulates annual budget laws be considered within a Medium-Term Expenditure Framework (MTEF), which is under preparation.
- Recommendations and targets:
  - Complete a government strategy for building line ministry capacity for program budgeting, multi-year planning, and identification of performance indicators in 2005.
  - Pilot ministries for this strategy: health, education, and agriculture.
- Treasury management:
  - Introduction of a treasury single revenue account in April 2004.
  - Authorities aim to complete transition to a treasury single account for all central government revenues and expenditures in 2005.
  - Staffs encourage expanding treasury coverage to local governments over the next few years.

### Sectoral policies
- Education:
  - Passage of two laws on general and higher education to increase accountability and quality responsibilities for schools and institutions.
  - Anticipated changes to financing of higher education, teacher training, curriculum development, and assessment/examination methods.
  - Staff observation: progress on efficiency improvements not as great as anticipated; need to consider personnel/facility rationalization and resources required to implement changes.
  - MTEF-required sectoral strategy and expenditure breakdowns seen as essential to operationalize the education program.
- Health:
  - Government focus on revision of the basic benefit package, primary health care needs, and resource availability.
  - Revisions underway: estimated cost of treatment, reimbursement rates, and medical standards in public facilities.
  - Measures addressing maternal and child health care issues adopted during 2005.
  - Staff concerns: deterioration in health outcomes (maternal and early childhood mortality, prevalence of vaccine preventable diseases, tuberculosis cases).
  - Staff recommendations:
    - Continue revision of basic benefit package.
    - Increase public spending for health under the MTEF.
    - Proceed with implementation of the hospital optimization program.
    - Clear all remaining arrears in the health sector in 2005.
    - Subsequent APRs should provide more information on health financing changes (e.g., canceling of earmarked health payroll tax, status of State United Social Insurance Fund) and results of maternal and child health measures such as the voucher program and updates on tuberculosis and HIV/AIDS.
- Energy:
  - Payment collections for electricity substantially increased outside Tbilisi during 2004.
  - Government stepped up funding, passed legislation to protect energy utilities during bankruptcy rehabilitation, and is cooperating with consultants on power sector debt solutions.
  - Sector remains in crisis: continued insolvency and poor service in power and gas.
  - Priorities: address financial flows, develop plan for technical rehabilitation of transmission systems, make difficult decisions on collections, tariffs, debt overhang, and investments.
  - Privatization of utility companies under preparation could be useful but not a substitute for government action on core problems.
- Transport:
  - Recommend in-depth analysis of railways’ technical condition, market demand characteristics, and private sector participation.
  - Commend liberalization of motor transport and air traffic service improvements since Rose Revolution.
  - Needs: revise civil aviation licensing law; examine organization, pricing, and financing of Air Traffic Control; improve airport management and traffic safety.
  - Maritime: pursue landlord port concept development at Poti and Batumi.
  - Roads: RDMED embarked on rehabilitation program; road sector budget doubled—prioritization should be based on engineering and economic considerations.
- Fiscal decentralization and local governments:
  - Recent accomplishments: improvements in local budget revenue structure under new tax code; ratification of the European Charter on Local Self-Government; adoption of Law on Transfer of State Properties to local governments.
  - Concern: draft Local Budget law submitted in September 2004 was not aligned with World Bank technical advice and provides little information on proposed local revenue size, degree of local discretion, and ability to raise own-source revenues.
- Agriculture and irrigation:
  - APR suggests moves toward deregulation; staffs recommend orderly, measured deregulation consistent with WTO requirements and public safety.
  - Deregulation will require legal/regulatory reform, retraining of monitoring staff, effective engagement of private service providers, and improved information management across regulatory agencies.
  - Concerns about irrigation and drainage sub-sector sustainability:
    - Service fees remain very low.
    - Ministry of Agriculture reducing budget support for Melioration System Management Department by about 40 percent.
    - Government decision to shift all collected service fees to the central budget (with no clear arrangement for return to service areas) could discourage fee payment and jeopardize operation and maintenance.
- Environment:
  - APR lists activities but provides limited information on results.
  - Recommendation: future APRs should assess impact of environmental protection activities on environment health, natural resource use patterns, and immediate livelihoods of the poor.

### Transparency and accountability
- Notable anti-corruption and governance actions:
  - Prosecution of high-profile former officials suspected of corruption.
  - Drastic retrenchment in civil service accompanied by a rise in remunerations.
  - Visible governance improvements including sharp reduction in extortion by traffic police.
  - Approval of a new tax code reducing number of taxes and tax rates.
  - Adoption of a new law on financial amnesty.
- Staff recommendations and outstanding challenges:
  - Authorities encouraged to accord due process to individuals and enterprises charged with corruption.
  - Remaining challenges to improve business climate and sustain growth:
    - Provide reliable electricity supplies to all paying customers.
    - Develop deeper financial markets and a credit culture.
    - Simplify procedures for business registration, licensing, and inspection.
  - APR identifies these challenges and contains concrete reform proposals.

*International Development Association and International Monetary Fund. Joint Staff Advisory Note on the Poverty Reduction Strategy Paper Progress Report — Georgia. May 20, 2005.*

### Section 2

### Section 2

### Financial sector and related reforms
- The APR discusses the lowering of minimum reserve requirements for local currency deposits that took place in 2004.
- Staffs note additional results achieved under the EDPRP that are not reported in the APR, including:
  - Passage of anti-money laundering legislation and the initial stage of its implementation.
  - Introduction of internal control systems in commercial banks.
- Staff advice to the authorities:
  - Implement measures to enhance creditor and property rights.
  - Establish a Credit Bureau.
  - Develop the legislative framework for housing finance.
  - Improve risk management.

### Privatization
- The EDPRP highlights the government’s desire to accelerate privatization while adhering to the principles of transparency and fair treatment.
- The APR does not elaborate on the extent to which these principles have been followed during the recent privatization operations, but staffs believe that more extensive advertising would have made these operations more transparent.
- Staffs consider that the overall process was broadly acceptable and support the government’s effort to establish a web site to advertise the small and medium SOEs selected for privatization.
- Examples of entities involved in recent privatization operations include:
  - The Ocean Shipping company
  - The Chiaturmanganetsi mining complex
  - The Tkibulnakhshiri coal mine
  - The Vartsikhe power station
  - The Tbilaviamsheni aircraft company
  - The Krtsanisi government residence

### Participation, coordination, and donor support
- Civil society engagement and consultation:
  - Authorities commended for continued efforts to deepen civil society consultation and participation during EDPRP implementation.
  - The new government drew many top officials from civil society organizations that had participated in EDPRP preparation and maintained close, though informal, ties to these organizations.
  - Government engaged in broad-based consultations on key reform initiatives, notably tax and education reforms.
  - Key stakeholders included in efforts to develop medium-term strategic priorities; a joint commission with the business community is being completed to discuss economic policies.
  - Government sought close involvement of civil society in preparation of the APR.
- Donor coordination and pledges:
  - The poverty reduction strategy has been an important vehicle for donor coordination.
  - The Donors’ Conference in June 2004, co-sponsored by the World Bank and the European Commission, produced aid pledges in excess of US$1.0 billion for the three year period 2004–06.
  - Government consultations with donors continued at the sectoral level, notably on reforms of the revenue collection and budget management systems of the Ministry of Finance, and on the situation in the energy sector.
  - Two meetings were held with donors on preparation of the progress report, leading to a high degree of donor coordination in implementation of assistance programs.

### Monitoring and capacity
- Monitoring of the poverty reduction strategy’s implementation can be strengthened; several issues related to poverty monitoring itself were identified.
- EDPRP emphasizes monitorable goals and indicators, but concerns were raised in the JSA over institutional capacity constraints to prioritize and measure these goals.
- Staffs are encouraged by:
  - The recommended focus on capacity building.
  - The more systematic prioritization being undertaken with the ongoing strategic framework exercise.
  - The stated objective of moving to program budgeting during the next couple of years.
- Expected outcomes of these efforts:
  - Development of specific measurable interim targets to guide policy makers and society in identifying program areas proceeding well and those needing adjustment.
  - Need for government to work with the donor community to assure careful monitoring and reporting of the utilization of aid flows.

### Conclusion and challenges
- Overall assessment:
  - Implementation of Georgia’s poverty reduction strategy over the past year has been successful, owing in large part to an impressive improvement in the public finances.
  - Authorities have taken bold steps to tackle corruption, in keeping with their intention to consolidate democracy and improve the business climate.
  - Participation of stakeholders in the poverty reduction strategy process has been satisfactory.
- Four challenges as the Government strengthens strategic focus and implementation of its poverty reduction strategy:
  (i) Strengthen links between the poverty reduction strategy and annual government budgets by timely development of a Medium-Term Expenditure Framework aligned with the strategy, and by ensuring that the Ministry of Finance has a key role in implementing and further developing the poverty reduction strategy (a concern noted in the last JSA);
  (ii) Strengthen the growth basis for the strategy through:
    - Construction of a financially-viable power grid with reliable supply of electricity to all regions of Georgia;
    - Expediting privatization in a transparent and fair manner;
    - Adequate resource allocations for health and education sectors;
  (iii) Strengthen social protection through rapid progress with a targeted social safety net; and
  (iv) Promote governance and public service delivery improvements through the further empowerment of civil society.

*Source: _cr05210 - Section 2*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05210.pdf_