Press Release: IMF Completes Second Review under Stand-By Arrangement for Georgia and Approves US$186.6 Million Disbursement

March 24, 2009

Press Release No. 09/83
March 24, 2009

The Executive Board of the International Monetary Fund (IMF) on March 23 completed the second review of Georgia's performance under an 18-month Stand-By Arrangement totaling SDR 477.1 million (about US$705.3 million). The completion of the review allows for the immediate disbursement of an amount equivalent to SDR 126.2 million (about US$186.6 million).

The Arrangement was approved in September 2008 (see Press Release No. 08/208) to support the Georgian authorities’ macroeconomic policies, rebuild gross international reserves, and bolster investor confidence.

The Executive Board also concluded the 2009 Article IV consultation with Georgia. Details of the findings will be published in a Public Information Notice in due course.

After the Executive Board's discussion on March 23, 2009, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

“Economic and financial conditions have become more challenging since the last program review, as Georgia feels the effects of the global crisis. Sharp declines in trade and workers’ remittances, weak commodity prices, and recessions and currency depreciations in major trading partners are threatening domestic confidence and adversely affecting foreign direct investment inflows, and growth prospects. The authorities plan to mitigate the impact of the economic slowdown through a donor-financed fiscal stimulus and a reorientation of expenditures.

“With the aim of aligning public spending with available official external financing, the authorities have reduced the 2009 fiscal deficit target. To ensure that public spending has the maximum impact on the population at large and to alleviate pressures on the poorest, expenditures will be reoriented in favor of essential productivity-enhancing infrastructure investment and targeted social support measures. A reform of expenditure management is also being planned.

“The authorities are encouraged to use all the instruments of monetary policy, including the interest rate and reserve requirements, as part of their adjustment strategy. In this regard, the planned improvements in the central bank’s liquidity framework are timely, and should help enhance the effectiveness of interest rate policy.

“Foreign exchange auctions have been introduced, an important step toward exchange rate flexibility and the preservation of external stability. This will also help the authorities to protect, and ultimately to rebuild, international reserves.

“Against the background of a deterioration in banks’ loan portfolios and the impact of a sharp contraction in credit on bank profitability, strong supervisory vigilance over the banking system will be crucial. In that vein, the Financial Supervisory Agency is strengthening provisioning based on bank-by-bank assessments, and will stress-test banks with technical assistance from the Fund. The authorities are encouraged to consider measures to bolster depositor confidence and deal with possible systemic risks.

“Georgia’s economic policies are being crafted not only in response to the immediate crisis, but also with a view to supporting sustained economic growth over the medium term. The authorities are encouraged to build on their strong track record of reforms and their commitment to fiscal prudence and low inflation. Special focus should be placed on improving Georgia’s competitiveness, notably by enhancing the environment for private investment in the tradable sector, and thus helping to reduce the current account deficit and raise employment,” Mr. Kato said.


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