IMF Staff Concludes Review Mission to Georgia

IMF News, November 4, 2019

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The authorities and the IMF team reached a staff-level agreement on completing the fifth review under the reform program supported by an IMF Extended Fund Facility and extending the arrangement by one year, subject to approval by Management and the Executive Board.
Consideration by the Executive Board is expected in December 2019.
Completion of the review will make SDR30 million (about $41.6 million) available to Georgia, bringing total disbursements under the EFF arrangement to SDR180 million (about $249.5 million).
The agreement covers the Fifth Review and a one-year extension and rephasing of access under the Extended Fund Facility (EFF).

Growth and external position:
- In the first half of 2019, growth reached 4.7 percent (y/y).
- The current account deficit fell to a historic low (4.6 percent of GDP).
- Projected growth: 4.6 percent in 2019, and 4.3 percent in 2020.
- Risks to the outlook are to the downside, mostly driven by external developments.
Inflation and monetary policy:
- Lari depreciation increased inflation to 6.9 percent y/y in October.
- Inflation is expected to decline to the 3-percent target by end-2020 as one-off factors dissipate, and monetary policy adjusts as needed.
- The National Bank of Georgia (NBG) increased its policy rate by a cumulative 200 basis points since September 2019, and appropriately maintains a tightening bias until inflation expectations are firmly anchored around its inflation target.
- The authorities’ continued commitment to the inflation targeting framework is welcomed.

Fiscal stance and targets:
- The mission agreed with the authorities on the key parameters of the 2020 budget, targeting an overall fiscal deficit of 2.7 percent of GDP.
- This level is described as preserving fiscal discipline while making space for higher social spending.
Revenue, expenditures, and risks:
- Tax collection has been exceeding projections, partly due to improved tax administration.
- The increase in the excise on rolling tobacco will help harmonize rates and preserve the tax base.
- Fiscal policy has balanced infrastructure investment and social spending with fiscal discipline; smoother execution of the budget has accelerated public investment.
- Continued monitoring of fiscal risks, including those arising from state-owned enterprises and purchasing power agreements, will help safeguard fiscal sustainability.

Banking sector:
- The banking sector remains well capitalized, liquid, and profitable.
- Authorities’ efforts to strengthen financial stability, including by enhancing supervision for nonbanks, are welcomed.
- The timely enactment of the new banking resolution framework, in line with best international practices, will further help strengthen financial resilience.
Structural reforms to support growth:
- Sustained infrastructure investment and continued steadfast implementation of the authorities’ reforms should support private-sector led growth, create jobs, and promote more inclusive growth.
- Specific reform priorities highlighted:
- Advancing implementation of the education reform to gradually help improve job creation, productivity, and wages.
- Upcoming insolvency framework and capital market reforms.
- A fully implemented pension reform to help mobilize investment.

An IMF team led by Ms. Mercedes Vera Martin visited Tbilisi from October 23 to November 4 to discuss the Fifth Review and a one-year extension and rephasing of access under the EFF.
The mission thanked the authorities, specifically the technical team, international development partners, and representatives of the private sector for open and constructive discussions and hospitality.

Press Release No. 19/392 — November 4, 2019 — IMF staff statement on the Fifth Review and one-year extension of the EFF arrangement for Georgia.

Press Release-End of Mission SV SMP
- Press Release-End of Mission SV SMP (Markdown version)
- Press Release-End of Mission SV SMP (PDF)