IMF Staff Concludes Visit to Georgia
IMF News, February 17, 2023
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- Published: February 17, 2023
Key findings on recent performance
- Georgian economy grew strongly in 2022 at around 10 percent, reflecting:
- limited adverse spillovers from Russia’s war in Ukraine,
- buoyant tourism,
- a surge in war-related migrant and financial inflows,
- a rise in transit trade through Georgia.
- These factors:
- boosted fiscal revenues,
- significantly narrowed the current account deficit,
- supported foreign exchange reserve purchases and the lari.
- Headline inflation:
- decelerated in the second half of 2022, helped by falling commodity prices, lari appreciation, and slowing credit growth,
- remains well above the NBG’s target,
- core inflation and inflation expectations inched up in January due to strong domestic demand and rising housing rents, driven largely by migrant inflows.
Near-term outlook and projections
- Growth is expected to ease in 2023 to around 4 percent due to:
- subsiding migrant and FX inflows,
- slowing trading partner growth,
- an appropriately restrictive fiscal policy stance.
- Disinflation path:
- Continuing gradual disinflation in 2023 and reaching the NBG’s inflation target of 3 percent by mid-2024 would require an appropriately restrictive monetary policy stance and continued strong credibility in the NBG’s independence.
Fiscal stance and structural reforms
- 2022 outcomes and 2023 budget:
- Strong revenues supported significant progress on deficit reduction in 2022.
- The 2023 budget aims to reduce the deficit to 2.8 percent of GDP, in compliance with the fiscal rule.
- Policy priorities to create fiscal space:
- continued efforts on revenue mobilization,
- public investment management improvements,
- development of a medium-term revenue strategy,
- successful implementation of the SOE governance reform and renewable energy development strategies developed last year to enhance productivity and limit fiscal risks.
Monetary policy and financial stability recommendations
- Policy priorities given high uncertainty:
- sufficiently tight monetary policy,
- exchange rate flexibility,
- further building up fiscal and foreign exchange buffers.
- National Bank of Georgia (NBG) guidance:
- NBG’s commitment to exchange rate flexibility, a build-up of reserve buffers, and a strong and resilient financial sector is welcome.
- The NBG should continue to carefully assess inflation dynamics and be ready to raise interest rates further if there are signs of high inflation becoming entrenched.
Governance and risks to credibility
- Risk highlighted:
- Recent action to amend the National Bank of Georgia (NBG) law to change the NBG’s management structure risks undermining the authorities’ hard-won credibility.
- Recommendation:
- Any changes to the central bank’s governance framework should be carefully contemplated and follow a deliberative consultation process to ensure that central bank independence and credibility are safeguarded.
- Emphasis:
- With risks to the outlook high, preserving policy credibility is critical.
Mission context and next steps
- Mission details:
- An IMF team led by Mr. James John held meetings in Tbilisi during February 13-17, 2023.
- The mission will not result in a Board discussion.
- Engagement:
- The team met with Governor of the National Bank Gvenetadze, Minister of Finance Khutsishvili, Minister of Economy and Sustainable Development Davitashvili, other senior officials, and representatives of the private sector and the donor community.
- The IMF team looks forward to continuing the dialogue in the coming months in the context of the second review of Georgia’s IMF-supported economic reform program.
Press Release No. 23/45 — IMF Communications Department, February 17, 2023.
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