IMF Executive Board Approves US$285.3 million Extended Arrangement Under the Extended Fund Facility for Georgia
IMF News, April 12, 2017
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- Published: April 12, 2017
Program approval and financing
- Executive Board approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Georgia for an amount of SDR 210.4 million (about $285.3 million or 100 percent of quota).
- The approval allows for an immediate disbursement of SDR30 million (or about US$40.7 million).
- The remaining amount will be phased over the duration of the program, subject to six semi-annual reviews.
- Program aims to reduce economic vulnerabilities, pursue well-coordinated policies, and promote economic growth.
Program objectives and structural reforms
- Core objectives:
- Promote higher and more inclusive growth while maintaining macroeconomic stability.
- Strengthen financial stability and reduce external imbalances.
- Enhance fiscal credibility and increase infrastructure investment.
- Undertake structural reforms to support private sector-led growth and diversification.
- Structural reform priorities:
- Improving education.
- Investing in road infrastructure and addressing infrastructure bottlenecks.
- Making public administration more efficient.
- Capital market development and pension reform to mobilize domestic savings.
- Establishing a PPP framework, public financial management improvements, private sector governance and competition, and education reform.
- Further improvement of the business environment to boost the private sector as a growth engine.
Policy stance and program measures
- Fiscal policy:
- Fiscal consolidation over the medium term anchored on limiting debt to the current level, while shifting spending from current toward capital investment.
- Reduce current spending and increase revenues to create space for public investment.
- Measures include better management of the wage bill, efficiency gains in current spending, new spending controls on local governments, and efforts to increase efficiency in public healthcare without undermining coverage for the most vulnerable.
- Government has increased taxes to offset revenue losses from the corporate income tax reform and partly finance additional capital spending.
- Authorities committed to take additional measures, if needed, to meet the fiscal target.
- Monetary and external:
- National Bank of Georgia (NBG) remains committed to price stability and exchange rate flexibility.
- Inflation will be monitored to ensure consistency with NBG’s medium-term inflation targets; NBG will continue allowing the exchange rate to adjust with market conditions.
- Program aims to build up international reserves; NBG will improve liquidity management, strengthen monetary policy, and improve communication.
- Financial sector:
- NBG to introduce macroprudential instruments, including limits on loan-to-value and payment-to-income ratios for mortgages, with more stringent limits on loans denominated in foreign currency.
- Strengthen safety nets and the resolution framework in the near term; enhance the lender of last resort framework in the medium term.
- Authorities announced comprehensive de-dollarization measures and the introduction of deposit insurance.
- External support:
- Unlock bilateral and multilateral support to help finance infrastructure investment and build foreign exchange reserves over the program period.
Risks and governance
- IMF assessment: Risks to program implementation are significant but should be mitigated by the authorities’ determined commitment and broad political support.
- Identified vulnerabilities: narrow production base, external and fiscal imbalances, subdued economic growth with high unemployment, exposure to low growth in major trading partners due to lower oil prices.
Recent economic developments and outlook
- Growth and inflation:
- Real GDP growth in 2016: 2.7 percent.
- Real GDP growth projected in 2017: 3.5 percent.
- Inflation in 2016 stayed well below the 5 percent target despite policy rate cuts.
- Inflation projected to remain above the NBG’s target (4 percent) in 2017 before converging to the NBG target by 2018.
- External sector and debt:
- Current account deficit in 2016: 12.4 percent of GDP.
- Current account balance projected for 2017: -12.9 (in percent of GDP).
- External debt, mostly concessional, grew close to 110 percent of GDP (table entries: Gross external debt 2015: 107.8; 2016: 111.8; 2017: 119.3).
- Current account financing continued to rely on FDI.
- Fiscal outcomes:
- Fiscal deficit reached 4.1 percent of GDP in 2016, higher than the originally budgeted deficit of 3.0 percent of GDP.
- Current spending overruns and higher budget lending partially offset by higher-than-envisaged excise and corporate profit tax revenues.
- Banking and financial indicators:
- Georgia’s banking sector remained resilient in 2016, highly dollarized, with a minor increase in non-performing loans; reported adequate capital, liquidity and profitability.
- Credit grew 12 percent (at constant exchange rate) in 2016.
- Deposit dollarization (in percent of total): 2012: 60.4; 2013: 55.7; 2014: 57.1; 2015: 66.8; 2016: 69.9; 2017: 69.0.
- Credit dollarization (in percent of total): 2012: 67.1; 2013: 61.7; 2014: 59.7; 2015: 63.1; 2016: 64.6; 2017: 61.5.
Key statistics (selected indicators from table)
- Real GDP (annual percentage change): 2012: 6.4; 2013: 3.4; 2014: 4.6; 2015: 2.9; 2016: 2.7; 2017: 3.5.
- Nominal GDP (in billions of laris): 2012: 26.2; 2013: 26.8; 2014: 29.2; 2015: 31.8; 2016: 33.7; 2017: 36.2.
- Nominal GDP (in billions of U.S. dollars): 2012: 15.8; 2013: 16.1; 2014: 16.5; 2015: 14.0; 2016: 14.2; 2017: 13.7.
- GDP per capita (in thousands of U.S. dollars): 2012: 4.1; 2013: 4.3; 2014: 4.4; 2015: 3.8; 2016: 3.7.
- CPI, Period average: 2012: -0.9; 2013: -0.5; 2014: 3.1; 2015: 2.1; 2016: 5.7.
- CPI, End-of-period: 2012: -1.4; 2013: 2.4; 2014: 2.0; 2015: 4.9; 2016: 1.8; 2017: 5.4.
- Investment (in percent of GDP): 2012: 28.9; 2013: 24.8; 2014: 29.8; 2015: 32.1; 2016: 33.4.
- Public investment (in percent of GDP): 2012: 7.5; 2013: 5.1; 2014: 5.0; 2015: 5.6; 2016: 5.8.
- Private investment (in percent of GDP): 2012: 21.4; 2013: 19.7; 2014: 24.9; 2015: 26.5; 2016: 26.7; 2017: 27.7.
- Revenue and grants (percent of GDP): 2012: 28.8; 2013: 27.5; 2014: 28.0; 2015: 28.1; 2016: 28.6; 2017: 29.3.
- Expenditures (percent of GDP): 2012: 30.1; 2013: 31.0; 2014: 31.9; 2015: 32.7.
- Current expenditures (percent of GDP): 2012: 23.1; 2013: 24.3; 2014: 25.3.
- Capital spending and net lending (percent of GDP): 2012: 8.7; 2013: 7.0; 2014: 6.5; 2015: 8.0.
- Augmented Net lending/ borrowing (Program definition)1/: 2013: -2.7; 2014: -3.0; 2015: -3.7.
- Public debt (percent of GDP): 2012: 34.7; 2013: 35.6; 2014: 41.4; 2015: 44.9; 2016: 45.5.
- Foreign-currency denominated (percent of GDP): 2012: 27.6; 2013: 27.2; 2014: 32.5; 2015: 35.5; 2016: 35.9.
- Credit to the private sector (annual percentage change): 2012: 12.8; 2013: 19.5; 2014: 23.3; 2015: 22.1; 2016: 19.6; 2017: 10.5.
- Broad money (annual percentage change): 2012: 11.4; 2013: 24.4; 2014: 13.8; 2015: 20.4; 2016: 10.1.
- Gross international reserves (in billions of US$): 2012: 2.8; 2013: 2.5.
- Gross external debt (percent of GDP): 2012: 82.8; 2013: 82.0; 2014: 83.3; 2015: 107.8; 2016: 111.8; 2017: 119.3.
- Gross external debt, excl. intercompany loans (percent of GDP): 2012: 66.0; 2013: 65.6; 2014: 64.9; 2015: 86.2; 2016: 87.8; 2017: 91.7.
- Current account balance (percent of GDP): 2012: -11.7; 2013: -5.8; 2014: -10.6; 2015: -12.0; 2016: -12.4; 2017: -12.9.
- Laris per U.S. dollar (period average): 2012: 1.65; 2013: 1.66; 2014: 1.77; 2015: 2.27; 2016: 2.37.
- REER (period average; CPI based, 2010=100): 2012: 111.3; 2013: 107.0; 2014: 109.0; 2015: 104.0; 2016: 107.5.
Press Release No. 17/130, April 12, 2017, IMF Communications Department.