IMF Staff Concludes Virtual Visit to Georgia

IMF News, September 15, 2020

Source details

Press Release No. 20/293
Mission dates: virtual meetings during September 8-14, 2020
Mission leader: Ms. Mercedes Vera-Martin
Statement issuer: IMF staff team (views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board)
Note: This mission will not result in a Board discussion.

The COVID-19 pandemic’s health impact has been well-contained, but it has had a significant impact on economic activity.
The external position has deteriorated as tourism revenues have come to a virtual standstill.
Preliminary data suggest a tentative recovery in domestic demand beginning in June.
Growth in credit to the private sector remains robust, partly supported by government subsidies on lari-denominated mortgages.
Slack demand and the post-lockdown recovery in supply have recently put downward pressures on inflation.

Growth projection: expected to contract by 5 percent.
Rationale for revision: slightly higher contraction than at the time of the Sixth Review, partly reflecting a more severe slowdown in the second quarter of 2020 and a more protracted recovery in external demand.
Risk assessment:
- Given pervasive uncertainty about the pandemic, downside risks to the outlook dominate.
- Realization of risks (e.g., more prolonged slowdown in major trading partners, slower-than-envisaged recovery in tourism) may require:
- continued exchange rate flexibility
- additional policy support

Authorities’ response: launched a sizable fiscal package to mitigate social and economic impact, enabled by prudent pre-pandemic macroeconomic policies and external and fiscal buffers, and strong international support.
Measures taken:
- expanded social transfers
- enacted temporary tax relief measures for businesses and households
- provided subsidies to sustain activity in the sectors most affected
Medium-term priorities and recommendations:
- Address the decline in revenues in 2020 to formulate a gradual fiscal consolidation, as required by the fiscal rule.
- Build fiscal space for needed spending on education and infrastructure.
- Continue structural fiscal reforms, including:
- enhance tax administration
- expand the coverage and monitoring of fiscal risks
- formulate a strategy to improve the corporate governance of state-owned enterprises

National Bank of Georgia (NBG) measures:
- eased capital and regulatory requirements at the onset of the COVID-19 shock
- provided lari and FX liquidity
- preemptively requested additional provisioning for banks
- reduced the policy rate in response to declining economic activity and easing inflation pressures
Recommendation: Maintaining exchange rate flexibility remains essential to manage the shock.

Implementation of structural reforms under the EFF has progressed well.
Recent legislative developments:
- Parliament approved the legislation to index basic public pensions in July.
- The new insolvency law is expected to be approved soon.
Recommendations:
- Timely implementation of legislation related to corporate insolvency and banking resolution to help improve the business environment and financial sector resilience.
- Continue structural reforms to limit scarring in Georgia’s medium-term economic potential and promote higher and more inclusive growth.

The team met with:
- Governor of the National Bank Gvenetadze
- Minister of Finance Matchavariani
- other senior officials
- representatives of the private sector
Next engagement: Continue the dialogue during the October mission for the seventh review of Georgia’s economic reform program supported by the IMF.
IMF Communications Department contact for media relations:
- PRESS OFFICER: Nadya Saber
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
- Twitter: @IMFSpokesperson

IMF staff statement issued at the end of the mission (September 15, 2020).

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- სსფ-მ საქართველოში მისია ვირტუალურად წარმართა (Markdown version)
- სსფ-მ საქართველოში მისია ვირტუალურად წარმართა (PDF)