IMF Executive Board Completes the Seventh Review under the Extended Fund Facility for Georgia
IMF News, December 16, 2020
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- IMF Executive Board Completes the Seventh Review under the Extended Fund Facility for Georgia
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Bibliographic details
- Published: December 16, 2020
Key decisions and disbursements
- The Executive Board approved a disbursement of $113.9 million to help Georgia meet balance of payments needs stemming from the COVID-19 shock.
- The completion of the Seventh Review will release SDR79 million (about $113.9 million).
- Total disbursements so far under the arrangement amount to SDR406 million (about $585.4 million).
Main findings on the economic outlook
- Georgia faces a pronounced economic slowdown due to the COVID-19 pandemic; risks are large and mostly to the downside.
- Despite successful containment of the first wave, the recent rise in cases could weaken the recovery.
- Macroeconomic policy discipline and decisive implementation of structural reforms will be critical to support the recovery and limit scarring from the COVID-19 shock.
Monetary policy assessment
- The National Bank of Georgia has appropriately maintained a moderately tight monetary stance to anchor inflation expectations, while safeguarding exchange rate flexibility.
- Inflation pressures have abated as the output gap widened and the nominal effective exchange rate stabilized.
- The tight monetary policy stance and continued foreign-exchange intervention may need to be sustained to prevent disorderly market conditions and bring inflation towards the 3-percent target.
- Macroeconomic policy discipline and donor support is expected to keep foreign exchange reserves at an adequate level.
- Proactive monitoring of financial risks and actions to preserve banks’ capital until the economy rebounds would support the recovery.
Fiscal policy assessment and risks
- The fiscal response to the pandemic has helped alleviate its adverse economic and social impact, with higher healthcare spending, targeted and temporary support to households and businesses, and sustained public investment.
- The 2021 Budget will further support the economic recovery while starting fiscal consolidation consistent with Georgia’s fiscal rule.
- Proactive monitoring of fiscal risks stemming from power purchase agreements and state-owned enterprises is expected to help safeguard debt sustainability.
- Plans to reform state-owned enterprises will help to improve the efficiency of the public sector.
Structural reforms and policy recommendations
- Decisive implementation of structural reforms is critical to support the recovery and limit scarring from the COVID-19 shock.
- Key reform priorities include:
- Mobilizing investment.
- Advancing education reform.
- Implementing the new insolvency framework.
- Developing the local capital market.
- Judiciary reforms to improve the business environment and support private sector–led growth.
Program performance
- Performance under the IMF-supported program remains satisfactory.
- The EFF arrangement has helped support the authorities’ policies to limit the economic impact of the pandemic.
Selected economic and financial indicators (2018–21)
- Real GDP (annual percentage change): 4.8; 5.1; -4.0; -5.1; 4.3
- Nominal GDP (in billion of laris): 44.6; 50.0; 50.3; 49.9; 53.9
- Nominal GDP (in billion of U.S. dollars): 17.6; 17.7; 15.1; 16.2; 17.0
- GDP per capita (in thousand of U.S. dollars): 4.7; 4.1; 4.4; 4.6
- GDP deflator, period average: 6.4; 5.2; 3.8
- CPI, Period average: 2.6; 4.9; 2.5
- CPI, End-of-period: 1.5; 7.0; 3.5; 3.0
- Gross national saving (in percent of GDP): 21.4; 23.2; 20.3; 16.6
- Investment (in percent of GDP): 28.1; 28.6; 31.6; 26.4; 23.6
- Public: 7.9; 8.1; 8.0
- Private: 21.7; 20.7; 25.2; 18.3; 15.7
- Revenue and grants (in percent of GDP): 26.7; 24.1; 24.9
- o.w. Tax revenue: 23.4; 23.7; 21.8; 22.3
- Expenditures (in percent of GDP): 29.2; 29.1; 32.9; 34.2
- Current expenditures (in percent of GDP): 21.3; 21.0; 26.2; 25.9
- Capital spending and budget lending (in percent of GDP): 6.7; 8.3; 8.0
- Net Lending/Borrowing (GFSM 2001) (in percent of GDP): -0.8; -1.8; -8.2; -8.8; -7.4
- Augmented Net lending / borrowing (Program definition) 2/ (in percent of GDP): -2.3; -2.0; -8.5; -9.0; -7.5
- Public debt (in percent of GDP): 38.4; 41.2; 62.8; 56.3; 59.1
- Credit to the private sector (annual percentage change): 19.9; 5.9; 17.1; 6.5
- In constant exchange rate: 16.1; 10.0; 6.0
- Broad money (annual percentage change): 13.9; 3.6; 14.3; 16.5
- Broad money (incl. fx deposits, annual percentage change): 15.9; 18.8; -4.6; 3.1; 8.8; 14.9
- Deposit dollarization (in percent of total): 63.1; 64.0; 62.4; 64.1; 63.4
- Credit dollarization (in percent of total): 57.1; 55.4; 51.6; 56.9; 56.7
- Credit to GDP (in percent): 57.4; 61.8; 66.2; 72.6; 71.5
- Current account balance (in percent of GDP): -6.8; -5.4; -1.7; -9.8
- Trade balance (in percent of GDP): -23.4; -21.0; -11.3; -17.1; -16.8
- Terms of trade (percent change): -5.2; -20.4; -0.5
- Gross international reserves (in billions of US$): 3.3; 3.4
- In percent of IMF Composite measure (floating): 95.0; 99.0; 103.9; 105.4; 95.4
- Gross external debt (in percent of GDP): 100.3; 103.4; 136.3; 127.0; 129.0
- Gross external debt, excl. intercompany loans (in percent of GDP): 82.2; 85.0; 111.4; 103.8; 106.5
- Laris per U.S. dollar (period average): 2.53; …
- Laris per euro (period average): 2.99
- REER (period average; CPI based, 2010=100): 106.2
Press Release No. 20/377 — December 16, 2020.