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IMF Executive Board Completes the Seventh Review under the Extended Fund Facility for Georgia

December 16, 2020

  • The IMF Executive Board approved a disbursement of $113.9 million to help Georgia meet balance of payments needs stemming from the COVID-19 shock.
  • The authorities have taken appropriate steps to alleviate the adverse economic and social impact of the shock given the pronounced economic slowdown.
  • Macroeconomic policy discipline and decisive implementation of structural reforms will be critical to support the recovery and limit scarring from the COVID-19 shock.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the Seventh Review of Georgia’s economic reform program supported by a four-year extended arrangement under the Extended Fund Facility (EFF).

The completion of the review will release SDR79 million (about $113.9 million) to help Georgia meet balance of payments needs stemming from the COVID-19 shock. Total disbursements so far under the arrangement amount to SDR406 million (about $585.4 million).

Following the Executive Board discussion, Mr. Tao Zhang, IMF Deputy Managing Director and Chair, made the following statement:

“Georgia faces a pronounced economic slowdown due to the COVID-19 pandemic. Despite the successful containment of the first wave of the pandemic, the recent rise in cases has required new measures that could weaken the recovery. Risks are large and mostly to the downside.

“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. The proactive monitoring of financial risks and actions to preserve banks’ capital until the economy rebounds would support the recovery.

“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. The authorities’ proactive monitoring of fiscal risks stemming from power purchase agreements and state-owned enterprises are expected to help safeguard debt sustainability. Plans to reform state-owned enterprises will help to improve the efficiency of the public sector.

“Decisive implementation of structural reforms is critical to support the recovery and limit scarring from the COVID-19 shock. Mobilizing investment, advancing education reform, implementing the new insolvency framework, developing the local capital market, and judiciary reforms would further improve the business environment and support private sector–led growth.

“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.”

Table 1. Georgia: Selected Economic and Financial Indicators, 2018–21

2018

2019

2020

2020

2021

Actual

CR 20/149 1/

Projections

National accounts and prices

(annual percentage change; unless otherwise indicated)

Real GDP

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

4.8

4.1

4.4

4.6

GDP deflator, period average

4.3

6.4

5.1

5.2

3.8

CPI, Period average

2.6

4.9

4.7

5.2

2.5

CPI, End-of-period

1.5

7.0

3.5

3.5

3.0

Investment and saving

(in percent of GDP)

Gross national saving

21.4

23.2

20.3

16.6

15.1

Investment

28.1

28.6

31.6

26.4

23.6

Public

6.4

7.9

6.4

8.1

7.9

Private

21.7

20.7

25.2

18.3

15.7

Consolidated government operations

(in percent of GDP)

Revenue and grants

26.4

26.7

24.1

24.9

24.9

o.w. Tax revenue

23.4

23.7

21.4

21.8

22.3

Expenditures

29.2

29.1

32.9

34.2

32.9

Current expenditures

21.3

21.0

26.2

25.9

24.9

Capital spending and budget lending

7.9

8.1

6.7

8.3

8.0

Net Lending/Borrowing (GFSM 2001)

-0.8

-1.8

-8.2

-8.8

-7.4

Augmented Net lending / borrowing (Program definition) 2/

-2.3

-2.0

-8.5

-9.0

-7.5

Public debt

38.4

41.2

62.8

56.3

59.1

Money and credit

(in percent; unless otherwise indicated)

Credit to the private sector (annual percentage change)

19.9

20.7

5.9

17.1

6.5

In constant exchange rate

17.7

16.1

-2.3

10.0

6.0

Broad money (annual percentage change)

13.9

17.6

3.6

14.3

16.5

Broad money (incl. fx deposits, annual percentage change)

15.9

18.8

-4.6

14.3

17.7

In constant exchange rate

15.1

14.3

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

57.4

61.8

66.2

72.6

71.5

External sector

(in percent of GDP; unless otherwise indicated)

Current account balance

-6.8

-5.4

-1.7

-9.8

-8.5

Trade balance

-23.4

-21.0

-11.3

-17.1

-16.8

Terms of trade (percent change)

-5.2

2.5

-20.4

4.8

-0.5

Gross international reserves (in billions of US$)

3.3

3.5

3.5

3.6

3.4

In percent of IMF Composite measure (floating)

95.0

99.0

103.9

105.4

95.4

Gross external debt

100.3

103.4

136.3

127.0

129.0

Gross external debt, excl. intercompany loans

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

Sources: Georgian authorities; and Fund staff estimates.

1/ Please refer to this link for details: https://www.imf.org/en/Publications/CR/Issues/2020/05/05/Georgia-Sixth-Review-Under-the-Extended-Arrangement-and-Requests-for-a-Waiver-of-49394.

2/ Augmented Net lending / borrowing (Program definition) = Net lending / borrowing - Budget lending.

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