Press Release: IMF Approves Second Annual Loan for Georgia Under ESAF

March 24, 1997

The International Monetary Fund (IMF) approved the second annual loan under the Enhanced Structural Adjustment Facility (ESAF), in an amount equivalent to SDR 55.5 million (about US$76 million), to support Georgia's economic program in 1997. The loan is available in two semiannual installments, the first of which will be available on April 4 of this year.


Georgia's stabilization and structural reform program has met with a large degree of success. In only two years, annual inflation has come down from hyperinflationary levels to 14 percent, growth has resumed and is picking up strongly, the external current account deficit has narrowed, and the international reserve position of the National Bank of Georgia has strengthened considerably. At the same time, price and trade liberalization are basically complete; the privatization program is well advanced; a major downsizing of the public sector and a progressive reform of the health sector are well under way; and a legal framework suitable for the needs of a market economy is gradually being developed. The exchange system has been liberalized and Georgia has accepted the obligations under Article VIII, Sections 2,3, and 4 of the Fund's Articles of Agreement. However, despite sharp reductions in the fiscal deficit, public finances remain weak, largely due to poor revenue performance.

The 1997 Program1

The key macroeconomic objectives of the 1997 program are: (a) to achieve a real GDP growth rate of at least 8-10 percent; (b) bring down the 12-month inflation rate to 10-12 percent; (c) further reduce the current account deficit to about 7 percent of GDP; and (d) reach a level of gross official international reserves equivalent to 2.5 months of imports. To achieve these objectives, fiscal policy will aim at reducing the overall deficit, on a cash basis and including grants, to 3.5 percent of GDP in 1997 from 4.4 percent of GDP in 1996, by increasing revenue mainly through further improvements in tax and customs administration, including expanding the large taxpayer unit, identifying new taxpayers through an ongoing comprehensive survey, and issuing Taxpayer Identification Numbers. The authorities are committed to maintaining expenditure at a level that is sustainable in the medium term, while reorienting outlays toward basic health and education, and improving the targeting of social safety net spending. Monetary policy will continue to play a key role in achieving the program's inflation target.

Structural Reforms

The authorities are committed to accelerating the implementation of structural reforms. In addition to the reforms under way in the banking sector and in tax administration, the agenda for1997 includes: restructuring the energy sector; pursuing an ambitious privatization program for medium-and-large-scale enterprises; accelerating agricultural land reform; developing a legal framework for the privatization of urban and industrial land; and further developing the enforcement of existing laws and regulations.

Addressing Social Needs

Since early 1995, the Government has made continuous attempts to improve the standards of living of the population. The monthly minimum wage in the budgetary sector has quadrupled in real terms since January 1995, and average real pensions have doubled over the same period. Several measures have already been implemented to improve the targeting of the social safety net, including a flat-rate pension system, and a new assistance program for the disabled. The Government intends to continue to increase the share of budgetary outlays on education in the next few years, and has embarked on an ambitious health care reform program.

The Challenge Ahead

Georgia's achievements in stabilization and structural reforms are remarkable, although much remains to be done. Achieving the fiscal targets under the program will require a determined effort to collect taxes. International financial assistance has played a central role in enabling the authorities to make a strong start in the reconstruction of the economy, but new bilateral assistance has been limited so far, and stronger international support is needed.

Georgia joined the IMF on May 5, 1992, and its quota2 is SDR 111.0 million (about US$153 million). Its outstanding use of IMF financing currently totals SDR 133.2 million (about US$183 million).

Georgia: Selected Economic Indicators






(Percent change)

Real GDP






Consumer prices (end period)3






(Percent of GDP)

Overall fiscal balance, cash basis and including grants (deficit-)






External current account balance, excluding official transfers (deficit-)






(Months of imports)

Gross official reserves






Sources: Georgian authorities, and IMF staff estimates and projections.
* Preliminary estimates.
** Program.
*** Projections.

1 Corrections made to the text in this paragraph are indicated in bold print.

2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.

3 Corrections made to the numbers on this line are indicated in bold print.


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