IMF Reaches Staff-Level Agreement on First Review for Georgia’s Stand-By Arrangement
IMF News, November 7, 2022
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- Authors: Arrangement IMF Reaches Staff-Level Agreement
- Published: November 7, 2022
Mission and staff-level agreement
- An IMF team led by James John conducted discussions in Tbilisi during October 26 - November 7, 2022 on the first review of Georgia’s economic reform program supported by an IMF Stand-By Arrangement (SBA).
- The Georgian authorities and the IMF team reached staff-level agreement on policies for completion of the first review of the SBA.
- The agreement is subject to approval by IMF management and consideration by the Executive Board, which is expected in December 2022.
- Completion of the review will make SDR30 million (about $38 million) available to Georgia.
- The authorities are treating the program as precautionary.
Macroeconomic performance in 2022 and near-term outlook
- The Georgian economy has performed strongly in 2022.
- Positive drivers cited:
- Buoyant tourism revenues.
- A surge in immigration and financial inflows triggered by the war in Ukraine.
- A rise in transit trade through Georgia.
- A robust recovery from the pandemic.
- Financial sector and exchange rate:
- Quick and appropriate National Bank of Georgia (NBG) action helped limit the impact of the war on the financial sector, including by requiring banks to adhere to relevant sanctions.
- The lari strengthened and foreign currency reserves accumulated.
- Credit and inflation:
- Credit growth has slowed.
- Inflation remains elevated reflecting still high commodity prices and strong domestic demand.
- Growth and inflation projections:
- Growth is now projected at 10 percent in 2022.
- Annual inflation is forecast to close the year at 10½ percent.
- Growth and inflation are expected to slow in 2023 due to moderating external inflows, deteriorating global economic and financial conditions, smaller fiscal deficits, and a sufficiently tight monetary policy stance.
- Over the medium term, growth is projected to converge to its potential rate of about 5 percent, supported by infrastructure investments and structural reforms to increase productivity.
- Inflation is forecast to fall to the NBG’s target level of 3 percent in 2024.
Program implementation, performance criteria, and reforms
- All quantitative performance criteria for the first review have been met including on inflation and fiscal and international reserve balances.
- Structural reforms implemented include:
- Tax policy and administration reforms.
- Financial supervision reforms.
- Public investment management reforms.
- An assessment of climate-related financial risks.
- Recent policy actions:
- The authorities have announced a renewable energy support scheme that guards against fiscal risks.
- Advancing reforms to enhance the governance of state-owned enterprises.
Policy recommendations and priorities
- Given high uncertainty, policies should remain firmly focused on maintaining macroeconomic stability and structural reform momentum.
- Monetary policy and reserve management:
- The IMF welcomes the authorities’ continued commitment to the inflation-targeting framework, the floating exchange rate, and prudent reserve management.
- The National Bank of Georgia has maintained exchange rate flexibility and rebuilt international reserves, taking advantage of favorable conditions with a surge of external inflows and continuing to buy foreign exchange via standard central bank intervention techniques.
- Maintaining a sufficiently tight monetary policy stance is essential to maintain inflation’s downward trend.
- Fiscal policy:
- Fiscal policy has been rightly focused on building buffers and managing risks.
- The authorities are saving part of the revenue windfall and will achieve a significantly lower deficit in 2022 than expected when the SBA was approved in June.
- The authorities remain committed to further fiscal adjustment in 2023 to comply with the fiscal rule.
- Continued progress on revenue mobilization and public investment management will help support infrastructure and education priorities while improving spending quality and efficiency.
- Structural reforms to support inclusive growth:
- Address skills mismatches in the labor market.
- Improve the quality of education and training.
- Enhance social protection.
- Deepen regional connectivity.
- These measures aim to reduce unemployment, raise competitiveness, and promote inclusion.
Closing statement
- The IMF team expressed thanks to the authorities, international development partners, and representatives of the private sector for open and constructive discussions.
IMF Communications Department press release dated November 7, 2022.