## _cr11146

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---

### Executive Summary — Recent developments
- Real GDP growth projected at 5½ percent in 2011; Q1 indicators support this projection.
- Inflation:
  - Headline inflation projected at 8½ percent by end-year due to rising food and fuel prices.
  - Year-on-year headline inflation peaked at 13.9 percent in March and edged down to 13.5 percent in April.
  - Core inflation remained subdued at 1.5 percent in April.
  - Food and energy shares of the CPI basket: 39 percent and 13 percent, respectively.
- Balance of payments and external sector:
  - Q1 balance of payments developments better than anticipated owing to higher private inflows, including tourism (40 percent growth year-on-year in Q1).
  - Current account deficit projected to widen to 10.8 percent of GDP in 2011 on account of higher import prices, and to decline steadily thereafter.
  - Exchange rate and reserves:
    - Lari appreciation: 7.6 percent against the dollar and 3.3 percent in nominal effective terms during the first four months of the year.
    - Central bank net FX purchases since the beginning of the year: $20 million (net).
    - Net international reserves have reached pre-crisis level.
    - On April 7, government issued a $500-million Eurobond (10-year maturity and 7.125-percent yield) and used proceeds to redeem $435 million of the $500-million Eurobond maturing in 2013.
- Monetary and financial conditions:
  - Money growth decelerated after the post-crisis surge; credit continues to grow at a healthy rate.
  - Lari deposit and lending rates stable; dollar lending rate declining slowly.
  - Nonperforming loans (IMF definition) declined to 5 percent in March.
  - In April, government started issuing 5-year T-notes to lengthen government paper maturities.

### Program performance and staff recommendation
- End-March 2011 performance criteria (PCs) were met except for the ceiling on general government expenditure.
- Specific outcomes:
  - End-March PCs on net international reserves (NIR) and net domestic assets (NDA) observed by wide margins due to lower-than-programmed FX intervention, a large one-off USD tax payment by an exporter, and lower reserve money growth.
  - End-March PC on government deficit observed by a wide margin (1.4 percent of annual GDP) as higher-than-projected revenues were only partly offset by higher spending.
  - End-March PC on government expenditure missed by about 0.2 percent of annual GDP owing to accelerated investment project execution and increased social spending (electricity and food vouchers).
  - End-March indicative target on contracting and guaranteeing of external debt was met.
- Staff supports authorities’ request for a waiver of nonobservance on the expenditure ceiling given corrective actions and that most higher-than-expected revenues were used to reduce the deficit and preserve the structural fiscal adjustment path.

### Macroeconomic outlook and policy guidance for remainder of 2011
- Growth and inflation:
  - Real GDP growth outlook unchanged at 5½ percent for 2011.
  - Headline inflation revised upward to 8½ percent by end-year; absent second-round effects, headline inflation expected to decelerate in H2 2011 as food and energy prices stabilize.
- External position:
  - Current account deficit projected to widen in 2011 by about 1¼ percentage points of GDP but by much less than envisaged at the time of the Article IV consultation (about 2½ percentage points of GDP).
  - Deterioration viewed as temporary; underlying current account at constant prices expected to improve.
  - Current account deficit projected to narrow steadily thereafter due to trading partners’ cyclical improvement, productivity gains, and real exchange rate convergence toward equilibrium.
- Fiscal policy:
  - Authorities intend to reduce the government deficit to 3.6 percent of GDP in 2011 (previously 4.3 percent of GDP).
  - Downward revision driven by projected revenue improvement equivalent to 1.7 percentage point of GDP (of which 1.3 percentage point in tax revenues), reflecting one-off factors (settlement of past tax arrears amounting to about 1 percentage point of GDP) and higher tax buoyancy.
  - Planned use of one-off revenue:
    - Primarily to reduce the deficit and finance additional one-off social outlays (food and electricity vouchers amounting to 0.2 percent of GDP).
    - Structural component and residual one-off revenue to finance a 25 percent increase in the basic pension to the equivalent of $60 per month (0.2 percentage point of GDP) effective in September; an increase in capital spending (0.6 percentage point of GDP); and an inflation-related increase in spending on goods and services.
  - Supplementary budget allows higher capital spending by 0.2 percent of GDP if additional revenues materialize.
  - Authorities retain flexibility to introduce revenue measures if expenditure containment proves difficult; constitutional amendment adopted in December 2010 subjects tax increases to referendum only after the 2013 presidential election.
  - Authorities committed to adopt an escape clause in line with staff recommendations before the referendum requirement becomes effective; consider including fiscal rules and the escape clause in an organic budget law to be submitted to parliament later in the year.
- Pension policy considerations:
  - Total benefits, including social assistance for nonpensioners, amount to 4.6 percent of GDP, of which 4 percent of GDP is pensions.
  - Basic pension is GEL80 per month (about $50) and will be raised to GEL100 in September; authorities considering another substantial increase in 2012.
  - Mission emphasized containing net budgetary cost of any further pension increase; options include limiting or phasing in increases through means testing and assessing contributory pension scheme proposals.
- Monetary policy stance:
  - Given earlier-than-projected decline in headline inflation and subdued core inflation, authorities consider current monetary stance appropriate and consistent with further deceleration of inflation in H2 2011.
  - Authorities ready to tighten monetary stance in response to signs of more persistent inflation and/or excessive growth in monetary and credit aggregates.
  - Any further tightening should rely on a mix of policy rate adjustments and increases in reserve requirements on foreign currency liabilities to avoid fueling further dollarization.

### Exchange rate policy and international reserves (NIR)
- NBG foreign currency market transactions guided by:
  - Opportunistic build-up of international reserves in the face of appreciation pressures.
  - Need to smooth out large-scale private transactions deemed market disruptive.
- Authorities raised NIR projection for 2011 by $205 million, to $1.1 billion.
- Authorities and staff agreed foreign exchange policy should be guided by the objective of increasing NIR.
- Preannounced FX purchase schedule could achieve NIR objective while allowing exchange rate freedom, but a move toward preannounced purchases considered premature due to market shallowness and potential for large volatility.
- Medium term: NBG participation should aim to increase NIR; if intervention used to smooth volatility, build an extra buffer beyond NIR targets.

### Remaining macroeconomic and social challenges
- Large current account deficit remains a source of vulnerability, especially with rising external debt servicing obligations in 2013.
- Significant adjustment required to bring primary fiscal deficit below its debt-stabilizing level.
- Unemployment remains high; recent increases in basic food and oil prices have eroded real incomes, notably for the most vulnerable.
- Banking sector recovered from crisis stress but potential new risks require close monitoring.
- Recent widening spread between lari and foreign currency deposit rates and lari appreciation do not appear to have triggered reallocation of savings toward local currency.
- Authorities designing a medium-term policy framework to:
  - Address remaining macroeconomic vulnerabilities and ensure return to a viable external position.
  - Ensure social safety nets mitigate impact of food and fuel price rises on the most vulnerable.
  - Strengthen incentives for private sector investment in tradables through structural reforms and supportive public spending.
  - Contain financial sector risks as access to capital and credit improves.
- Program issues and successor arrangement:
  - Authorities reiterated interest in a successor arrangement; need time to design medium-term framework before formal request.
  - Successor arrangement would support medium-term challenges and provide a safety net; likely precautionary but may be a drawing arrangement if external financing in 2012–13 is not mobilized.
  - Exact modalities to be discussed in coming weeks.

### Staff appraisal, recent progress, and policy recommendations
- SBA objectives largely achieved; Georgia exiting current Fund arrangement in a relatively strong position.
- Positive outcomes:
  - Solid economic growth enabling rapid fiscal consolidation.
  - International reserves restored to pre-crisis levels.
  - Bank lending resumed at a healthy pace with financial normalization.
  - Successful April 2011 Eurobond issue improves market confidence and eases 2013 rollover risks.
- Remaining vulnerabilities:
  - External repayment obligations rise in 2012–13, creating vulnerability amid uncertain external environment and possible political uncertainty around elections in 2012 and 2013.
- Policy recommendations and support:
  - Target higher accumulation of international reserves in 2011 to mitigate vulnerabilities.
  - Maintain revised fiscal plan for 2011 targeting ambitious adjustment and allowing increased social spending to alleviate food and fuel price impacts.
  - Preserve flexibility to take revenue-enhancing measures if faced with adverse fiscal shocks or implementation difficulties ahead of 2012–13 elections.
  - Monetary stance appropriate absent second-round inflation effects; readiness to adjust stance welcome.
  - Banking supervision should continue to monitor emerging vulnerabilities; supervisory authority should stocktake regulatory and supervision frameworks to identify potential gaps.
  - Fund staff stands ready to assist authorities in implementing a consistent set of fiscal, financial, and structural policies.

### Selected key macroeconomic projections and indicators (selected figures preserved)
- Nominal GDP (million lari): 2008: 19,075; 2009: 17,986; 2010: 20,791; 2011: 23,577; 2012: 26,428; 2013: 29,345; 2014: 32,430; 2015: 35,839; 2016: 39,607.
- Real GDP growth (annual): 2008: 2.4-3.8; 2009: -6.4; 2010: 6.4; 2011: 5.5; 2012: 5.3; 2013: 5.0; 2014: 5.0; 2015: 5.0; 2016: 5.0.
- Consumer price index, period average: 2008: 10.0; 2009: 1.7; 2010: 7.1; 2011: 11.6; 2012: 7.2; 2013: 6.0; 2014: 5.8; 2015: 5.5; 2016: 5.4.
- Current account balance (percent of GDP): 2008: -22.6; 2009: -11.2; 2010: -9.6; 2011: -10.8; 2012: -9.7; 2013: -8.1; 2014: -6.8; 2015: -5.8; 2016: -5.8.
- Gross international reserves (millions of US$): 2008: 1,480; 2009: 2,111; 2010: 2,263; 2011: 2,795; 2012: 2,669; 2013: 2,669; 2014: 2,715; 2015: 3,005; 2016: 3,097.
- Total government debt (percent of GDP): 2008: 27.6; 2009: 37.3; 2010: 39.1; 2011: 36.8; 2012: 37.6; 2013: 37.0; 2014: 35.5; 2015: 34.8; 2016: 34.0.
- Revenues (2011 projection): 6,315 (28.5 percent of GDP).
- Overall balance (2011 projection): -983 (-3.6 percent of GDP).
- External borrowing, projected 2011: 761 (1.9 percent of GDP); IMF component shown as 0 for 2011 in borrowing disbursements.
- Broad money (percent change): 2010: 28.5; 2011: 20.0.
- Bank credit to the private sector (percent change): 2010: 20.5; 2011: 15.8.
- Deposit dollarization (percent): Mar. 2010: 60.9; Dec. 2010: 75.7; Dec. 2011: 70.1; Dec. 2012: 70.8.
- Nonperforming loans (national definition, percent of total loans): 2008: 3.0; 2009: 3.4; 2010: 9.9; 2011: 12.8; 2012: 15.2; 2013: 18.8; 2014: 18.2; 2015: 17.9; 2016: 17.1.
- External debt (percent of GDP): 2008: 44.0; 2009: 58.0; 2010: 67.1; 2011: 62.0; 2012: 59.9; 2013: 58.6; 2014: 54.9; 2015: 52.5; 2016: 48.5.
- Gross external financing need (billions of US$): 2010: 2.4; 2011: 3.5; 2012: 3.5; 2013: 3.3.

### Institutional and program milestones, coordination, and communication
- Stand-By Arrangement chronology and access:
  - SBA approved 15-Sep-08; access augmented 6-Aug-09; arrangement extended to 14-Jun-11.
  - Total available: 747.1 SDR; Purchases shown: 497.1 SDR.
- IMF Executive Board actions:
  - On June 8, 2011, Board completed the ninth and final review and approved a waiver for nonobservance of the government expenditure PC.
  - Press Release No. 11/224 summarizes progress and remaining challenges; emphasizes medium-term framework, fiscal prudence on pensions, appropriate monetary stance, and continued banking sector monitoring.
- Relations and coordination with other partners:
  - World Bank: active DPO program and analytical work; joint Debt Sustainability Analysis ongoing (May 2011).
  - EBRD: country strategy (Feb. 2010) supporting financial sector stabilization, infrastructure, and de-dollarization efforts; portfolio and cofinancing activities summarized as of end-Q1 2011.

*Source: Executive Summary, sections 10–VI, and annexes from IMF staff report excerpt for _cr11146*

### Executive Summary ......................................................................................................

### Executive Summary

### Recent Developments
- Economic activity indicators support the real GDP growth projection of 5½ percent in 2011.
- Inflation developments:
  - Inflation projection revised up to 8½ percent by end-year on the back of rising food and fuel prices.
  - Year-on-year headline inflation peaked at 13.9 percent in March and edged down to 13.5 percent in April.
  - Core inflation remained subdued at 1.5 percent in April.
  - Food and energy prices make up 39 and 13 percent, respectively, of the total CPI basket.
- Balance of payments and external sector:
  - Balance of payment developments in Q1 were more favorable than anticipated owing to higher private inflows, including tourism (40 percent growth year-on-year in the first quarter).
  - The current account deficit is projected to widen moderately in 2011 to 10.8 percent of GDP on account of higher import prices, and to decline steadily thereafter.
  - Favorable external developments contributed to an appreciation of the lari against the dollar; during the first four months of the year the lari appreciated by 7.6 percent against the dollar and by 3.3 percent in nominal effective terms.
  - Since the beginning of the year, the central bank has purchased $20 million, on a net basis, on the foreign exchange market, and net international reserves have now reached their pre-crisis level.
  - On April 7, the government issued a $500-million Eurobond (10-year maturity and 7.125-percent yield) and used the issue to redeem, through a voluntary exchange, $435 million of the $500-million Eurobond maturing in 2013, reducing significantly the external debt rollover hump of 2013.
- Monetary and financial conditions:
  - Money growth has decelerated after the post-crisis surge; credit continues to grow at a healthy rate.
  - Lari deposit and lending rates have remained stable, reflecting steady monetary tightening since June 2010.
  - Dollar lending rate has been declining slowly after earlier rises related to tightening of foreign exchange reserve requirements.
  - Banks’ financial situation strengthened: NPLs have declined to 5 percent (IMF definition) in March.
  - In April, the government started issuing 5-year T-notes to lengthen government paper maturities.

### Program Performance
- End-March 2011 performance criteria (PCs) were met except for the ceiling on general government expenditure.
- Specific PC outcomes:
  - End-March PCs on net international reserves (NIR) and net domestic assets (NDA) were observed by wide margins due to lower-than-programmed FX intervention, a large one-off tax payment in U.S. dollars by an exporter, and lower reserve money growth.
  - End-March PC on the government deficit was observed by a wide margin (1.4 percent of annual GDP) as higher-than-projected revenues were only partly offset by higher spending.
  - The end-March PC on government expenditure was missed by about 0.2 percent of annual GDP owing to accelerated investment project execution and increased social spending (electricity and food vouchers) to mitigate the impact of higher food and energy prices.
  - The end-March indicative target on contracting and guaranteeing of external debt was met.
- Staff recommendation:
  - Staff supports the authorities’ request for a waiver of nonobservance on the expenditure ceiling, given corrective actions and that most higher-than-expected revenues were used to reduce the deficit and preserve the structural fiscal adjustment path.

### Macroeconomic Outlook and Policies for the Remainder of 2011
- Growth and inflation:
  - Real GDP growth outlook remains unchanged at 5½ percent for 2011.
  - Headline inflation projection revised upward to 8½ percent by end-year due to higher food and fuel prices; in the absence of second-round effects, headline inflation is expected to decelerate steadily in H2 2011 as food and energy prices stabilize.
- External position:
  - Current account deficit projected to widen in 2011 by about 1¼ percentage points of GDP but by much less than envisaged at the time of the Article IV consultation (about 2½ percentage points of GDP).
  - Deterioration viewed as temporary; underlying improvement in the current account balance measured at constant prices is expected.
  - Current account deficit projected to narrow steadily thereafter, driven by improvement in trading partners’ cyclical positions, productivity gains, and convergence of the real exchange rate toward equilibrium.
- Fiscal policy:
  - Authorities intend to reduce the government deficit to 3.6 percent of GDP in 2011, compared with 4.3 percent of GDP previously.
  - Downward revision reflects projected revenue improvement equivalent to 1.7 percentage point of GDP (of which 1.3 percentage point in tax revenues), owing to one-off factors (settlement of past tax arrears amounting to about 1 percentage point of GDP) and higher tax buoyancy.
  - Planned use of one-off revenue:
    - Primarily to reduce the deficit and finance additional one-off social outlays (food and electricity vouchers amounting to 0.2 percent of GDP).
    - Structural component and residual one-off revenue to finance a 25 percent increase in the basic pension to the equivalent of $60 per month (0.2 percentage point of GDP) effective in September; an increase in capital spending (0.6 percentage point of GDP); and an inflation-related increase in spending on goods and services.
  - Authorities adopted a supplementary budget allowing for higher capital spending by 0.2 percent of GDP if additional revenues materialize.
  - Authorities retain flexibility to introduce revenue measures if expenditure containment objectives prove difficult to achieve; constitutional amendment adopted in December 2010 subjects tax increases to referendum only after the 2013 presidential election.
  - Authorities committed to adopt an escape clause in line with staff recommendations before the referendum requirement becomes effective; consider including fiscal rules and the escape clause in an organic budget law to be submitted to parliament later this year.
- Pension policy considerations:
  - Total benefits, including social assistance for nonpensioners, amount to 4.6 percent of GDP, of which 4 percent of GDP is accounted by pensions.
  - Basic pension is GEL80 per month (about $50) and will be raised to GEL100 in September; authorities are considering another substantial increase in 2012.
  - Mission emphasized containing the net budgetary cost of any further pension increase; options include limiting or phasing in increases through means testing and careful assessment of contributory pension scheme proposals.
- Monetary policy stance:
  - Given earlier-than-projected decline in headline inflation and subdued core inflation, authorities consider the current monetary stance appropriate and consistent with further deceleration of inflation in H2 2011.
  - Authorities ready to tighten monetary stance in response to signs of more persistent inflation and/or excessive growth in monetary and credit aggregates.
  - Any further tightening should rely on a mix of policy rate adjustments and increases in reserve requirements on foreign currency liabilities to avoid fueling further dollarization.

### Remaining Challenges
- The large current account deficit remains a source of vulnerability.
- Additional fiscal adjustment is required to stabilize public debt while meeting social spending priorities.
- Authorities are designing a medium-term policy framework to address these challenges.

*Source: Executive Summary, _cr11146 - Executive Summary*

### 10.      The authorities consider that a flexible exchange rate remains key to meeting

### 10.      The authorities consider that a flexible exchange rate remains key to meeting

### Exchange rate policy and international reserves (NIR)
- The NBG’s transactions on the foreign currency market this year have been guided by two considerations: opportunistic build-up of international reserves in the face of steady appreciation pressures; and the need to smooth out large-scale private transactions deemed as market disruptive.
- Based on an improved balance of payments outlook relative to the last review, the authorities have raised their NIR projection for 2011 by $205 million, to $1.1 billion.
- The authorities and staff agreed that the foreign exchange policy should be guided by the objective of increasing NIR.
- Although a preannounced schedule of foreign currency purchases could achieve that objective while allowing the exchange rate to move freely, the authorities and the mission agreed that a move in this direction would be premature in view of the current shallowness of the market and thus potentially large volatility of the exchange rate.
- Over the medium term, NBG’s participation in the foreign exchange market should be guided by the objective of increasing NIR.
- To the extent that the authorities consider that intervention is needed to smooth excess volatility, it will be important that they build an extra buffer over and beyond their NIR targets to achieve this objective.

### Remaining macroeconomic and social challenges
- The large current account deficit remains a source of vulnerability, especially when combined with rising external debt servicing obligations in 2013.
- A significant adjustment is still required to bring the primary fiscal deficit below its debt stabilizing level.
- Unemployment remains high and recent increases in the prices of basic foodstuff and oil have eroded real incomes, notably for the most vulnerable.
- Banks have overcome the stress created by the financial crisis, but potential new risks need to be monitored closely.
- Note: The recent widening spread between lari and foreign currency deposit rates and appreciation of the lari against the U.S. dollar do not appear to have triggered a reallocation of savings toward the local currency.

### Authorities’ medium-term policy framework and intentions
- The authorities indicated their intention to tackle these challenges forcefully and are in the process of designing a medium-term policy framework, whose broad parameters were discussed with staff and are reflected in the attached medium-term projections.
- This framework will notably aim at:
  - addressing remaining macroeconomic vulnerabilities, and in particular, ensuring the return to a viable external position;
  - ensuring that social safety nets address the impact of the rise in food and fuel prices on the most vulnerable;
  - strengthening incentives for private sector investment in the tradable sector through structural reforms and supportive public spending;
  - containing financial sector risks as access to capital and credit improves.

### Program issues and successor arrangement
- The authorities reiterated their interest in a successor arrangement, but needed time to design their medium-term policy framework before submitting a formal request.
- A successor arrangement would support the authorities’ efforts to tackle the aforementioned medium-term challenges and provide a safety net against possible shocks.
- It would likely be precautionary, but may have to be a drawing arrangement if the unidentified external financing envisaged in 2012–13, which could take the form of additional financing from the IFIs or higher private capital flows, is not mobilized as expected.
- The exact modalities of the arrangement will be discussed in the coming weeks.

### Staff appraisal, recent progress, and policy recommendations
- The SBA program objectives have been largely achieved, and Georgia is exiting from the current Fund arrangement in a relatively strong position.
- The economy is growing at a solid pace, enabling rapid fiscal consolidation; international reserves have been restored to the pre-crisis levels; and, with the normalization of financial sector conditions, bank lending has resumed at a healthy pace.
- The successful Eurobond issue of April 2011 marks a significant improvement in market confidence and eases considerably debt rollover risks.
- While external financing and growth prospects have improved, the adjustment process has not been fully completed.
- The rise of external repayment obligations in 2012–13 creates vulnerabilities, owing to the uncertain external environment and possible political uncertainty around the elections of 2012 and 2013.
- The authorities’ plan to mitigate such vulnerabilities by targeting a higher accumulation of international reserves in 2011 is welcome.
- The authorities’ revised fiscal plan for 2011 targets a suitably ambitious adjustment and allows for an increase in social spending aimed at alleviating the social impact of higher food and fuel prices.
- Sufficient flexibility to take revenue-enhancing measures should be preserved; the authorities should consider and be able to take such measures if faced with adverse fiscal shocks and/or difficulties in implementing their expenditure-based fiscal consolidation strategy in the run-up to the 2012–13 elections.
- The monetary policy stance remains appropriate, given the absence of any evidence of second-round effects from the food and fuel price hikes; the authorities’ readiness to adjust the policy stance if signs of more persistent inflation emerge is welcome.
- The banking sector is back on a relatively solid footing and banking supervision is moving appropriately to monitor the emergence of new vulnerabilities.
- The supervisory authority has made considerable strides to strengthen its internal analytical capacity and responsiveness to emerging risks; stocktaking of the regulatory and supervision frameworks would be helpful at this stage to identify potential gaps.
- Remaining challenges need to be addressed through a consistent set of fiscal, financial, and structural policies. Fund staff stands ready to assist the authorities in the implementation of such a strategy.

*Source: Excerpt from IMF staff report (sections 10–VI) provided in the supplied content.*

### 23.      In light of the authorities’ commitment to reduce the 2011 fiscal deficit by more

### 23.      In light of the authorities’ commitment to reduce the 2011 fiscal deficit by more

### IMF staff assessment and decision
- Staff supports the authorities’ requests for completing the ninth Review and for a waiver of nonobservance of one performance criterion.
- Rationale: authorities’ commitment to reduce the 2011 fiscal deficit by more than envisaged at the time of the seventh and eighth reviews, thereby delivering the structural fiscal adjustment targeted under the program.

### Key macroeconomic projections and indicators (selected)
- Nominal GDP (in million lari): 2008: 19,075; 2009: 17,986; 2010: 20,791; 2011: 23,577; 2012: 26,428; 2013: 29,345; 2014: 32,430; 2015: 35,839; 2016: 39,607.
- Real GDP growth (annual): 2008: 2.4-3.8; 2009: -6.4; 2010: 6.4; 2011: 5.5; 2012: 5.3; 2013: 5.0; 2014: 5.0; 2015: 5.0; 2016: 5.0.
- GDP deflator, period average: 2008: 9.6-2.0; 2009: 8.7; 2010: 7.5; 2011: 6.5; 2012: 5.8; 2013: 5.3; 2014: 5.3; 2015: 5.3; 2016: 5.3.
- Consumer price index, period average: 2008: 10.0; 2009: 1.7; 2010: 7.1; 2011: 11.6; 2012: 7.2; 2013: 6.0; 2014: 5.8; 2015: 5.5; 2016: 5.4.
- Unemployment rate (in percent): 2008: 16.5; 2009: 16.9.

### Investment, saving, and external balances
- Investment (percent of GDP): 2008: 21.5; 2009: 15.3; 2010: 15.0; 2011: 16.5; 2012: 17.0; 2013: 17.5; 2014: 18.0; 2015: 18.0; 2016: 18.0.
  - Public investment (percent of GDP): 2008: 4.3; 2009: 6.9; 2010: 7.1; 2011: 6.5; 2012: 5.7; 2013: 5.8; 2014: 5.4; 2015: 5.6; 2016: 5.4.
  - Private investment (percent of GDP): 2008: 17.2; 2009: 8.5; 2010: 7.9; 2011: 10.0; 2012: 11.3; 2013: 11.7; 2014: 12.6; 2015: 12.4; 2016: 12.6.
- Gross national saving (percent of GDP): 2008: -1.1; 2009: 4.1; 2010: 5.4; 2011: 5.7; 2012: 7.3; 2013: 9.4; 2014: 11.2; 2015: 12.2; 2016: 12.2.
- Current account balance (in millions of US$): 2008: -2,912; 2009: -1,210; 2010: -1,117; 2011: -1,481; 2012: -1,439; 2013: -1,228; 2014: -1,085; 2015: -970; 2016: -1,039.
- Current account balance (percent of GDP): 2008: -22.6; 2009: -11.2; 2010: -9.6; 2011: -10.8; 2012: -9.7; 2013: -8.1; 2014: -6.8; 2015: -5.8; 2016: -5.8.
- Exports of goods and services (percent of GDP): 2008: 28.7; 2009: 29.8; 2010: 34.8; 2011: 36.7; 2012: 37.4; 2013: 38.6; 2014: 38.8; 2015: 38.9; 2016: 39.1.
- Imports of goods and services (percent of GDP): 2008: 58.3; 2009: 48.9; 2010: 52.2; 2011: 53.8; 2012: 52.5; 2013: 51.8; 2014: 51.0; 2015: 50.2; 2016: 50.5.
- Net imports of oil (in US$): 2008: 762; 2009: 555; 2010: 638; 2011: 849; 2012: 886; 2013: 898; 2014: 931; 2015: 980; 2016: 1,039.
- Gross international reserves (in millions of US$): 2008: 1,480; 2009: 2,111; 2010: 2,263; 2011: 2,795; 2012: 2,669; 2013: 2,669; 2014: 2,715; 2015: 3,005; 2016: 3,097.
- Reserves (months of next year's imports): 2008: 3.4; 2009: 4.2; 2010: 3.7; 2011: 4.3; 2012: 4.1; 2013: 4.0; 2014: 3.9; 2015: 4.0; 2016: 3.9.

### General government operations (selected, in percent of GDP unless noted)
- Total government debt (percent of GDP): 2008: 27.6; 2009: 37.3; 2010: 39.1; 2011: 36.8; 2012: 37.6; 2013: 37.0; 2014: 35.5; 2015: 34.8; 2016: 34.0.
  - Foreign-currency denominated share (percent of GDP): 2008: 23.5; 2009: 31.7; 2010: 33.6; 2011: 31.3; 2012: 31.7; 2013: 31.2; 2014: 29.8; 2015: 29.3; 2016: 28.7.
- Revenue (percent of GDP): 2008: 30.7; 2009: 29.3; 2010: 28.2; 2011: 28.5; 2012: 26.5; 2013: 26.3; 2014: 26.1; 2015: 26.1; 2016: 26.1.
- Current expenditures (percent of GDP): 2008: 28.5; 2009: 30.1; 2010: 26.0; 2011: 24.1; 2012: 23.0; 2013: 22.7; 2014: 22.2; 2015: 22.2; 2016: 22.2.
- Operating balance (percent of GDP): 2008: 2.2; 2009: -0.8; 2010: 2.2; 2011: 4.4; 2012: 4.4; 2013: 3.6; 2014: 3.9; 2015: 3.9; 2016: 3.9.
- Capital spending and net lending (percent of GDP): 2008: 8.6; 2009: 8.4; 2010: 8.8; 2011: 8.0; 2012: 6.7; 2013: 6.5; 2014: 5.9; 2015: 5.6; 2016: 5.4.
- Overall balance (percent of GDP): 2008: -6.3; 2009: -9.2; 2010: -6.6; 2011: -3.6; 2012: -3.3; 2013: -2.9; 2014: -2.0; 2015: -1.7; 2016: -1.5.
- Total financing (percent of GDP): 2008: 6.3; 2009: 9.2; 2010: 6.6; 2011: 3.6; 2012: 2.6; 2013: 2.3; 2014: 2.0; 2015: 1.7; 2016: 1.5.

### Fiscal aggregates (selected absolute figures, millions of lari, and percent of GDP where shown)
- Revenues (2011 annual projection): 6,315 (28.5 percent of GDP in 2011 7/8 Rev. column).
- Taxes (2011 annual projection): 5,571.
- Grants (2011 annual projection): 304 (0.6 percent of GDP).
- Current expenditures (2011 annual projection): 5,550 (24.1 percent of GDP).
- Capital spending and net lending (2011 annual projection): 1,748 (8.0 percent of GDP).
- Overall balance (2011 annual projection): -983 (-3.6 percent of GDP).
- Total financing (2011 annual projection): 983 (3.6 percent of GDP).
- External borrowing, projected 2011: 761 (1.9 percent of GDP) with IMF component explicitly shown as 0 for 2011 in borrowing disbursements.
- Privatization receipts (2011 projection): 150.

### Monetary sector (selected)
- Reserve money (percent change): 2008: -4.5; 2009: 21.8; 2010: 4.5; 2011: 7.0; 2012: 10.0; 2013: 9.3; 2014: 9.3; 2015: 9.3; 2016: 9.3.
- Broad money (including fx deposits) (percent change): 2008: 7.0; 2009: 8.1; 2010: 28.5; 2011: 20.0; 2012: 21.0; 2013: 19.0; 2014: 19.0; 2015: 19.0; 2016: 19.0.
- Bank credit to the private sector (percent change): 2008: 28.2; 2009: -13.5; 2010: 20.5; 2011: 15.8; 2012: 18.3; 2013: 15.0; 2014: 13.8; 2015: 13.4; 2016: 18.5.
- Lending interest rate (annual weighted average on flows): 2008: 22.7; 2009: 20.8; 2010: 17.7.

### Financial soundness indicators (selected)
- Deposit dollarization (percent): Mar. 2010: 60.9; Dec. 2010: 75.7; Dec. 2011: 70.1; Dec. 2012: 70.8.
- Loan-to-deposit ratio (percent) (selected): 2008: 129.4; 2009: 135.7; 2010: 147.0; 2011: 155.9; 2012: 165.3; 2013: 165.4; Mar. 2014: 143.0; Dec. 2014: 106.9.
- Nonperforming loans (national definition, percent of total loans): 2008: 3.0; 2009: 3.4; 2010: 9.9; 2011: 12.8; 2012: 15.2; 2013: 18.8; 2014: 18.2; 2015: 17.9; 2016: 17.1.
- Loans in foreign exchange (percent of total loans): 2008: 65.9; 2009: 64.9; 2010: 67.5; 2011: 72.8; 2012: 75.3; 2013: 77.3; 2014: 77.6; 2015: 76.9; 2016: 75.9.
- Specific provisions (percent of total loans): 2008: 1.9; 2009: 2.2; 2010: 4.7; 2011: 6.0; 2012: 7.5; 2013: 9.4; 2014: 10.2; 2015: 9.7; 2016: 9.4.
- Capital adequacy ratio (national definition): 2008: 17.5; 2009: 15.7; 2010: 17.0; 2011: 13.9; 2012: 15.2; 2013: 17.6; 2014: 20.2; 2015: 19.1; 2016: 18.3.

### External vulnerability and debt dynamics (selected)
- External public debt (percent of GDP): 2008: 20.9; 2009: 31.4; 2010: 33.7; 2011: 31.4; 2012: 30.4; 2013: 30.1; 2014: 29.1; 2015: 28.7; 2016: 28.3.
- External debt (percent of GDP): 2008: 44.0; 2009: 58.0; 2010: 67.1; 2011: 62.0; 2012: 59.9; 2013: 58.6; 2014: 54.9; 2015: 52.5; 2016: 48.5.
- Debt-stabilizing non-interest current account (percent of GDP): -6.1 (table summary).
- Gross external financing need (in billions of US dollars): 2006: 1.5; 2007: 2.7; 2008: 3.9; 2009: 2.7; 2010: 2.4; 2011: 3.5; 2012: 3.5; 2013: 3.3; 2014: 3.0; 2015: 2.8; 2016: 2.8.
- External debt-to-exports ratio (percent): 2008: 115.1; 2009: 123.7; 2010: 153.6; 2011: 194.9; 2012: 192.7; 2013: 169.0; 2014: 160.3; 2015: 151.8; 2016: 141.7; 2017 (proj): 134.9.

### IMF program access and schedule (selected)
- Schedule of prospective reviews and purchases (availability in millions of SDR; percent of quota):
  - 15-Sep-08 Approve the 18-month arrangement: 161.7 SDR (107.6 percent of quota).
  - 15-Nov-10 Complete the seventh and eighth reviews based on end-December 2010 performance criteria: 100.0 SDR (66.5 percent of quota).
  - 15-May-11 Complete the ninth review based on end-March 2011 performance criteria: 70.0 SDR (46.6 percent of quota).
  - Total available (table): 747.1 SDR; Purchases shown: 497.1 SDR.

### Debt sustainability: public sector (selected)
- Public sector debt (percent of GDP): 2006: 27.3; 2007: 21.5; 2008: 27.6; 2009: 37.3; 2010: 39.1; 2011: 36.8; 2012: 37.6; 2013: 37.0; 2014: 35.5; 2015: 34.8; 2016: 34.0.
- Primary deficit (percent of GDP): 2008: 2.3; 2009: 4.2; 2010: 5.7; 2011: 8.2; 2012: 5.6; 2013: 2.2; 2014: 2.1; 2015: 1.6; 2016: 0.8; 2017 (proj): 0.5; later: 0.3.
- Revenue and grants (percent of GDP): 2008: 26.7; 2009: 29.3; 2010: 30.7; 2011: 29.3; 2012: 28.2; 2013: 28.5; 2014: 26.5; 2015: 26.3; 2016: 26.1.

*Source: Georgian authorities; and Fund staff estimates and projections contained in the IMF staff report excerpt provided.*

### 1.      In September 2008, the International Monetary Fund (IMF) approved a Stand-By

### 1. In September 2008, the International Monetary Fund (IMF) approved a Stand-By Arrangement (SBA) for Georgia

### Background and purpose
- IMF SBA for Georgia approved in September 2008 and augmented in August 2009.
- On January 12, 2011, the IMF’s Executive Board completed the seventh and eighth reviews under the SBA.
- The letter of intent sets out economic policies planned for the remainder of 2011 to maintain macroeconomic stability and facilitate macroeconomic adjustment.
- Policies beyond 2011 will pursue sound fiscal and balance of payments positions, and low inflation; a comprehensive economic plan is being elaborated and Fund support will be requested through a successor arrangement.

### Recent economic developments (findings)
- Real GDP growth:
  - First quarter indicators consistent with an annual real GDP growth projection of 5.5 percent in 2011.
- Inflation:
  - CPI inflation peaked at 13.9 percent in March.
  - Core inflation (CPI excluding food, beverages, tobacco, and energy) recently declined below 2 percent.
  - Projected CPI inflation to decelerate in the second half of the year to around 8.5 percent by year-end.
- Balance of payments and external sector:
  - First-quarter trade deficit widened by almost 50 percent year-on-year due to higher import prices.
  - Tourism receipts grew by over 40 percent year-on-year.
  - Net financial inflows to the private sector estimated to have risen sharply.
  - On April 12, Georgia issued a $500-million Eurobond with 10-year maturity and 7.125-percent yield; proceeds used to buy back most of the $500 million Eurobond maturing in 2013.
  - Since the beginning of the year the lari appreciated by 5.7 percent against the dollar, and by 0.1 percent against the euro.
  - The central bank purchased $20 million, on a net basis, on the foreign exchange market.
  - Net international reserves have reached their pre-crisis level.
  - Annual target for net international reserves (NIR) revised up to reach $1.1 billion by year-end.
- Monetary and credit aggregates:
  - Broad money increased by 21 percent year-on-year in March (down from 40 percent in mid-2010).
  - Credit grew by 19 percent.
- Banking sector soundness:
  - NPLs declined to 5 percent of the loan portfolio in March 2011 (by the IMF definition).
  - Capitalization, provisioning, and liquidity ratios are within comfortable margins.
  - Bank profitability has increased.
  - Reliance on external wholesale funding has declined significantly relative to the pre-crisis level.

### Policies for 2011 (commitments and measures)
- Fiscal policy:
  - Recently adopted supplementary budget for 2011 targets a larger reduction in the deficit than envisaged at the time of the seventh and eighth reviews.
  - Higher tax revenue would largely be saved and only partly used to finance additional social and capital outlays.
  - Social spending increases include:
    - One-off distribution of food and electricity vouchers.
    - A 25 percent increase in basic pensions scheduled for September.
  - Budgeted increase in capital spending reflects infrastructure upgrades across a number of sectors.
  - Authorities stand ready to keep spending below budgeted levels to achieve the desired adjustment, given uncertainty about the recurrent component of the revenue gain.
  - Committed to reducing the government fiscal deficit by 3 percentage points of GDP, from 6.6 percent in 2010 to 3.6 percent in 2011.
- Exchange rate and reserves:
  - Commitment to a flexible exchange rate; intervention guided by need to dampen excess volatility in the thin Georgian foreign exchange market.
  - Annual NIR target revised to $1.1 billion by year-end (see above).
- Monetary policy:
  - Current monetary policy stance considered consistent with projected deceleration of inflation.
  - Authorities will monitor headline and core inflation and credit growth, and stand ready to adjust monetary policy if indicators deviate from projections.

### Program performance and request
- Performance criteria:
  - All but one of the end-March 2011 performance criteria (PCs) were met.
  - End-March PC on general government expenditure was missed owing to:
    - Distribution of food and electricity vouchers.
    - Accelerated project implementation under the Millennium Challenge Georgia Fund.
  - Other current spending was lower than expected.
  - Authorities consider the nonobservance of this PC does not compromise program objectives and is more than offset by the revised (and tighter) deficit target for the year.
- Request to the Fund:
  - Based on program performance and explanations provided, authorities request a waiver of nonobservance of the end-March PC on general government expenditures and completion of the ninth review.
  - Authorities will maintain close policy dialogue with the Fund.

*Source: _cr11146 - 1.*

### 11.      We authorize the IMF to publish this Letter of Intent as well as the accompanying

### _cr11146 - 11.      We authorize the IMF to publish this Letter of Intent as well as the accompanying

### Authorization and Signatures
- The Letter of Intent and the accompanying staff report are authorized for publication by the signatories:
  - /s/ Nika Gilauri — Prime Minister of Georgia
  - /s/ Kakha Baindurashvili — Minister of Finance
  - /s/ Giorgi Kadagidze — President of the National Bank of Georgia

### Quantitative Performance Criteria and Indicative Targets (Table 1 highlights)
- Table title: Georgia: Quantitative Performance Criteria (PC) and Indicative Targets, 2010-11.
- Selected end-period stock and cumulative change metrics (units preserved as in source):
  - Ceiling on cash deficit of the general government: 1,241 ... 1,366 170 138 -197
  - Ceiling on the general government expenditures: 7,106 ... 7,232 1,553 1,521 1,568
  - Ceiling on net domestic assets (NDA) of the NBG 1/: 714 689 349 516 543 -126
  - Floor on net international reserves (NIR) of the NBG 1/: 721 736 882 757 741 994
  - Ceiling on accumulation of external arrears 2/: 0 ... 0 0 ... 0
  - Indicative target — Ceiling on contracting or guaranteeing of new total external debt: 1,000 ... 718 500 500 209
  - Note: Actual figures and quantitative targets are based on program exchange rates. Continuous PC for external arrears defined in paragraph 21 of the TMU (Country Report No. 11/31).

### Relations with the Fund (Annex I) — Key institutional and financial facts (As of March 31, 2011)
- Membership Status: Georgia joined the Fund on May 5, 1992.
- Quota and holdings (SDR Million; Percent of Quota):
  - Quota: 150.30 100.00
  - Fund holdings of currency: 727.40 483.97
  - Reserve position in Fund: 0.01 0.01
- SDR Department holdings: Holdings 147.56 102.50
- Outstanding Purchases and Loans: Stand-by Arrangements 577.10 383.97
- Latest Financial Arrangements (type, approval date, expiration date, amount approved, amount drawn):
  - Stand-By: 9/15/08 — 6/14/11 — 747.10 — 577.10
  - ECF 1: 6/4/04 — 9/30/07 — 98.00 — 98.00
  - ECF 1: 1/12/01 — 1/11/04 — 108.00 — 49.50
- Projected Payments to Fund (Expectation Basis; SDR million):
  - Principal forthcoming totals by year: 2011 31.26 159.90 251.11 166.75 52.23 (as formatted in source)
  - Charges/interest: 8.20 9.65 8.55 2.10 0.29
  - Total: 39.46 169.55 256.64 168.85 52.52
- Safeguards: Update of December 2008 safeguards assessment of the National Bank of Georgia completed on January 21, 2010. NBG publishes IFRS-compliant financial statements, externally audited. Authorities agreed to a multi-year appointment of an external audit firm beginning with financial year 2010.
- Exchange Arrangements:
  - From 1993 to 2009, interventions via TICEX daily fixing sessions. Temporary de facto peg after early August armed conflict. A 17 percent depreciation allowed in second week of November (year implied by context).
  - March 2009: authorities introduced auction-based foreign exchange system; end-May 2009 ended TICEX interventions.
  - Official exchange rate used for budget and tax accounting and government payments; official and market rates have not differed by more than 2 percent since March 2009 auctions.
- Article IV Consultation: The 2011 Article IV consultation was concluded on March 23, 2011.
- FSAP Participation: FSAP missions in May 1–15 and July 24–August 7, 2001; FSAP update mission Feb.15–28, 2006.
- Resident representation and advisors:
  - Resident Representative: Mr. Edward Gardner, took post March 15, 2009.
  - National Bank of Georgia and Ministry of Finance resident and peripatetic advisors listed with dates and roles (as detailed in Annex I).

### Fund Technical Assistance Missions, 2007–11 (Table 1 highlights)
- Fiscal Affairs Department (FAD): Tax Administration follow-up mission Jan. 17–30, 2007; Tax Administration expert assistance (Woodley) Jan/Feb and Apr/May 2008; Budget Classification and Accounting Reforms advisory Jun. 11-22, 2007; Public Financial Management expert assistance Apr. 6-19, 2010; Pension Reform expert assistance Apr. 21-27, 2011.
- Monetary and Capital Markets Department (MCM): Monetary Operations/Monetary Policy/Foreign Exchange Advisory Feb. 16–Mar. 2, 2007; Consolidated Supervision Advisory Dec. 4–14, 2007; Lender of Last Resort Framework Advisory Dec. 11-17, 2008; Stress Testing and Foreign Exchange Market Advisory Apr. 21-30, 2009; Macroeconomic Modeling advisory June 2-10, 2010 and Oct. 4-13, 2010; Payment Systems Oversight Advisory May 3–12, 2011.
- Statistics Department (STA): Balance of Payments follow-up Jul. 9-20, 2007; Monetary and Financial Statistics advisory Mar. 18-31, 2009; Evaluation of Technical Assistance Jul. 14–16, 2010; External Sector Statistics follow-up Oct. 4–15, 2010.
- Legal Department (LEG): Payment Systems advisory May 25–Jun. 5, 2010; Follow-up Nov. 8–14, 2010; Legislative Drafting advisory Feb. 28–Mar. 7, 2011.

### Relations with the World Bank (Annex II) — Activities and coordination (As of May 10, 2011)
- World Bank engagement areas include:
  - DPO program with ongoing policy dialogue on public investment management, program budgeting, social safety nets, tax and customs reforms, trade-related reforms.
  - Public Sector Financial Management Project.
  - Analytical work: Programmatic PER, Trade Dialogue / Technical Assistance, Programmatic Poverty Assessment.
- Timing and mission highlights:
  - Fund missions and technical assistance: staff visit on 2011 budget and macroeconomic framework; SBA 7th and 8th Reviews; Art. IV Consultation; SBA 9th Review; TA on payments system legal framework follow up; TA on payments system oversight; TA on macroeconomic model for monetary policy analysis; TA on pensions.
  - Joint Bank-Fund Joint Debt Sustainability Analysis: Ongoing collaboration May 2011.

### Relations with the EBRD (Annex III) — Strategic directions and operations (As of April 30, 2011)
- EBRD country strategy approved February 2010 — main strategic directions:
  - Support stabilization and restructuring of the financial sector; strengthen risk and portfolio management; increase share of local currency operations.
  - Help rehabilitate and modernize road, energy and municipal infrastructure to strengthen energy security and promote energy efficiency.
  - Provide financing to the enterprise sector to support innovation, competition and export potential, particularly manufacturing and agribusiness.
- Portfolio and operations:
  - As of end of first quarter of 2011: 131 investments signed; cumulative commitment totaling €1 billion; outstanding portfolio €692 million.
  - Portfolio sector shares: financial sector 40 percent; energy sector 25 percent; infrastructure 21 percent.
  - Ratio of private sector projects: 82 percent.
- Key 2008–2010 interventions:
  - 2008–9: EBRD and IFC provided $170 million in equity, quasi equity and loan facilities to Bank of Georgia and TBC Bank.
  - 2010 major projects: Tbilisi Railway By-Pass (€112 million); Black Sea Transmission Line sovereign loan (€80 million); Enghuri hydro power plant rehabilitation (€20 million); berth rehabilitation at Poti port (€8 million); Adjara solid waste landfill project (€3 million).
  - SME credit lines: TBC Bank €5.6 million; Bank of Georgia €15 million.
  - Medium size Co-Financing Facility (MCFF) sub-projects totaling €16 million.
  - Energy Efficiency Initiative facility €3.7 million for residential and industrial on-lending to Bank of Georgia.
- ETC initiative and de-dollarization efforts:
  - Georgia part of Early Transition Countries (ETC) initiative launched April 2004; EBRD annual business volume in Georgia increased five-fold since ETC launch.
  - Memorandum of Understanding signed (April date in source) between Ministry of Finance, National Bank of Georgia and EBRD to support dedollarization and expand lari lending and technical assistance.

### IMF Press Release and Executive Board Completion — Ninth and Final Review (Press Release No. 11/224; June 9, 2011)
- On June 8, 2011, IMF Executive Board completed the ninth and final review of Georgia under the Stand-By Arrangement.
- Background and amounts:
  - Stand-By Arrangement approved September 15, 2008 for SDR 477.1 million (about US$ 770 million). On August 6, 2009, access augmented to SDR 747.1 million (about US$ 1.2 billion) and extended to June 14, 2011.
  - Between 2008 and July 2010, SDR 577.1 million (about US$ 930 million) was disbursed. Arrangement expires June 14, 2011.
- Board actions and findings:
  - Board approved a waiver for nonobservance of the performance criterion related to government expenditure.
  - Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, summarized that program objectives have been largely achieved: rebound in economic activity, improved market confidence, recovery of international reserves to pre-crisis level.
  - Remaining challenges noted: external adjustment not complete; public debt should be reduced further; growth needs to be sustained to reduce unemployment.
  - Policy guidance: medium-term policy framework should address these challenges; preserve flexibility to introduce revenue-enhancing measures; structure and finance any pension increase so as not to compromise fiscal objectives.
  - Monetary policy: current stance appropriate absent second-round effects from food and fuel price hikes; authorities ready to adjust stance if persistent inflation emerges; enhanced exchange rate flexibility commended.
  - Banking sector: largely overcome 2008 stress; close monitoring for emerging vulnerabilities recommended; supervisory steps to strengthen analytical capacity welcomed.

### Statements by Georgian Authorities (Statement by Mr. Bakker and Mr. Lezhava; June 8, 2011)
- Authorities’ assessment and commitments:
  - Program allowed adequate response to negative external shocks and restored macroeconomic stability and confidence.
  - Macroeconomic indicators are encouraging, but further adjustment is needed.
  - Strategic principles: fiscal consolidation, flexible exchange rate, and inflation targeting regime.
  - Fiscal consolidation approach: keep expenditure focused on targeted capital spending and allow reasonable social outlays.
  - National Bank commitments: maintain flexible exchange rate; aim to improve transmission mechanism for inflation targeting.
  - Priorities for monetary policy effectiveness: money market development, local currency credibility, lower dollarization, improved modeling/forecasting capabilities; exploring technical assistance with IFIs including the Fund.
- Economic outcomes and indicators cited:
  - Growth rate in 2010: 6.4 percent.
  - Unemployment: 16.3 percent in 2010 against 16.9 in 2009.
  - Current account deficit: declined to 9.6 percent of GDP in 2010, down from 22.6 percent in 2008.
  - Inflation: described as in the double digits with steady increase from June 2010; forecasts point to substantial reduction in second half of the year; inflation driven by high food and fuel prices while core inflation remains subdued and no second-round effects observed so far.
  - Banking sector: reducing trend of non-performing loans, increasing profits, comfortable liquidity, provisioning and capital levels, reasonable pace of credit growth.
  - Fiscal deficit: reduced from 9.2 in 2009 to 6.6 in 2010 and expected to be lowered to 3.6 in 2011; larger deficit reduction than previously envisaged possible due to higher revenue collections.
- Debt management and market access:
  - On April 7, 2011, Georgia priced a 10-year benchmark Eurobond: increased maturity from 5 to 10 years, yield lowered from 7.5 to 7.125 (pricing described as impressive with very large oversubscription ratio and exceptionally low yield).
  - Goal: address public debt service spike in 2013; gradually increase maturity of government papers in local market; maintain conservative public debt management to secure sustainable debt dynamics given redemptions under current SBA due in 2011-2015.
- Future program intentions:
  - To maintain market confidence and Fund access if needed, authorities plan to request a successor program once medium-term policy framework specifics are formulated.
  - Commitment to continue fiscal and monetary strategic principles guiding future policy decisions.

*Source: IMF staff report and annexes, Georgia Ninth Review Under the Stand-By Arrangement and Request for Waiver of Nonobservance of Performance Criterion; informational annex and Press Release No. 11/224 (as provided in the content unit)._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11146.pdf_