Georgia: Staff Concluding Statement of the 2024 Article IV Mission
IMF News, March 18, 2024
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- Published: March 18, 2024
Mission summary and overarching conclusions
- An IMF mission led by Mr. Matthew Gaertner conducted the 2024 Article IV consultation discussions in Tbilisi during March 6-18.
- Georgia has “weathered well multiple shocks since the Covid-19 pandemic,” supported by increased tourism, transit trade, and financial inflows linked to Russia’s war in Ukraine and swift policy responses.
- The global environment is expected to remain highly uncertain due to ongoing conflicts and shifting geo-economic patterns.
- Policy focus: maintain prudent macroeconomic policies, boost growth potential by addressing structural challenges, and capitalize on new economic opportunities.
- Priority reforms highlighted: reforming State-Owned Enterprises (SOEs) to limit fiscal risks and enhance efficiency; strengthening the independence of the National Bank of Georgia (NBG); improving education, infrastructure, and governance to raise productivity and address high unemployment and economic disparities.
Recent developments, outlook, and risks
- Financial inflows from the war in Ukraine have moderated but remain above pre-war levels, supporting continued strong economic performance.
- Growth:
- 2023 growth: 7.5 percent (above trend), driven by tourism, trade, construction, financial services, and strong investments.
- 2024 forecast: 5.7 percent, with consumption playing a larger role supported by strong real wage growth and employment.
- Medium-term expectation: converge to potential rate of around 5 percent.
- Inflation and monetary stance:
- Inflation fell sharply during 2023 and closed the year at 0.4 percent.
- NBG policy rate lowered by a cumulative 275 basis points since May 2023 to 8.25 percent in March.
- Inflation expected to reach 4 percent by end-2024 and converge back to target in the medium term.
- External sector:
- Current account deficit in 2023: historic low of 4.5 percent of GDP.
- Gross international reserves: $5 billion at end-2023, covering just above 3 months of imports.
- 2024 current account forecast: widen to 6 percent of GDP as remittances normalize and imports pick up.
- Medium-term current account: converge to 5.5 percent of GDP as services trade balance improves.
- Fiscal developments:
- 2023 fiscal deficit (including budget lending): 2.4 percent of GDP (vs budgeted 2.8 percent), reflecting revenue overperformance.
- 2024 budget targets a deficit of 2.5 percent of GDP; increased revenues from CIT for banks and new gambling taxes finance higher wages, social benefits, and capital investments.
- Public debt expected to remain below 40 percent of GDP in 2024 and over the medium term.
- Risks:
- Downside: uncertainty about war-related migrant and financial inflows, potential reversal of migrant/FX/tourism inflows, intensification of sanctions, geo-economic fragmentation, and reform backsliding.
- Upside: increased transit trade and investments from shifting geo-economic patterns, and EU candidate status as a positive signal to investors.
Policy priorities — macroeconomic and financial
- Overarching objective: ensure strong, sustained, and inclusive growth; maintain resilience to external shocks; make decisive progress toward EU accession.
Fiscal policy
- Modest further fiscal adjustment in the medium term to build buffers under the fiscal rule and create room for productive spending.
- Target fiscal deficits: in the range of 2-2.5 percent of GDP to help stabilize public debt around 40 percent of GDP and keep it below the fiscal rule ceiling in adverse shocks.
- Adjustment should be underpinned by:
- a medium-term revenue strategy,
- further enhancement of revenue administration,
- streamlined tax expenditures,
- enhanced project prioritization and spending efficiency.
- SOE reform:
- Steadfast implementation of SOE reform and renewable energy development strategies adopted in late-2022 to raise productivity and limit fiscal risks.
- SOE law should ensure the Ministry of Finance is appropriately empowered to have strong oversight to monitor and mitigate fiscal risks, and ensure clear separation between the state’s shareholder, regulatory, and policy functions.
- Efforts to concretely reduce the footprint of the state in the economy need to be stepped up.
- Electricity market:
- Authorities should proceed with the electricity market’s opening (delayed again).
- Renewable energy support scheme: support should be based on updated demand and supply projections that net out legacy projects advancing under existing contracts; legacy projects not advancing should be terminated; costs of the scheme should not create fiscal risks.
Monetary and exchange rate policy
- Anchor inflation at the NBG’s target via a gradual and cautious approach to further policy rate cuts.
- Further rate cuts should be data-driven and decision-making clearly communicated to anchor expectations.
- Continue exchange rate flexibility and opportunistic reserve build-up to guard against adverse external shocks; NBG interventions in FX markets only to avoid disorderly conditions.
- Strengthen NBG governance and independence by amending the NBG law to:
- ensure a non-executive majority on the NBG’s oversight board,
- clarify and strengthen the succession framework and board member qualification criteria,
- move from a presidential to collegial decision-making model.
Financial sector resilience
- Banking system: well capitalized, profitable, and liquid but highly concentrated and dollarized.
- Maintain adequate loan loss reserves and capital buffers amid high uncertainty around FX inflows and global financial conditions.
- Structural issues of concentration and dollarization should be addressed by improving competition in the banking system and strengthening macroeconomic policy frameworks for stable growth and inflation.
- Vigilance needed against financial sector risks from capital inflows, virtual assets, and sanctions.
- Virtual asset service providers and digital banks require proper licensing, regulation, supervision, and strong AML/CFT controls to mitigate financial integrity, reputational, and conduct risks given large volumes of cross-border FX and crypto transactions.
Structural reforms and governance
- Objectives: stronger, more inclusive, and job-rich growth through enhanced education, productivity, infrastructure, and governance.
- Education and labor:
- Improve quality of teaching and training.
- Raise agricultural productivity, including by improving land registration and management, to address high unemployment and low rural labor force participation.
- Infrastructure:
- Prioritize investments in transport, logistics, and energy to lower trade costs, boost trade diversification, and enhance regional connectivity.
- Governance and rule of law:
- Despite high regional rankings, recent slippages in governance indicators warrant attention.
- Strengthen the judicial system and the anti-corruption authority to bolster competitiveness and meet EU-related standards.
Key statistics (Table 1: Selected Economic and Financial Indicators, 2022–26)
- Real GDP (annual percentage change): 2022 = 11.0; 2023 = 7.5; 2024 = 5.7; 2025 = 5.2; 2026 = 4.7.
- Nominal GDP (in billion of laris): 2022 = 72.9; 2023 = 80.6; 2024 = 88.7; 2025 = 97.7; 2026 = 106.2.
- Nominal GDP (in billion of U.S. dollars): 2022 = 25.0; 2023 = 30.7; 2024 = 32.9; 2025 = 35.6; 2026 = 38.3.
- GDP per capita (in thousand of U.S. dollars): 2022 = 6.8; 2023 = 8.2; 2024 = 8.8; 2025 = 9.6; 2026 = 10.3.
- CPI, period average: 2022 = 11.9; 2023 = 2.5; 2024 = 2.6; 2025 = 4.2; 2026 = 3.4.
- CPI, end-of-period: 2022 = 9.8; 2023 = 0.4; 2024 = 4.0; 2025 = 3.7; 2026 = 3.0.
- Consolidated government operations (in percent of GDP):
- Revenue and grants: 2022 = 26.5; 2023 = 27.5; 2024 = 28.1; 2025 = 27.7.
- o.w. Tax revenue: 2022 = 23.7; 2023 = 24.5; 2024 = 25.4; 2025 = 25.3.
- Total Expenditure: 2022 = 29.0; 2023 = 29.8; 2024 = 30.6; 2025 = 29.7.
- Current expenditures: 2022 = 21.4; 2023 = 22.2; 2024 = 23.0; 2025 = 23.2.
- Net acquisition of nonfinancial assets: 2022 = 7.6; 2023 = 6.6; 2024 = 6.5.
- Net lending / borrowing (GFSM 2001): 2022 = -2.6; 2023 = -2.3; 2024 = -2.2.
- Augmented net lending / borrowing 1/: 2022 = -3.1; 2023 = -2.4; 2024 = -2.5.
- Public debt: 2022 = 39.2; 2023 = 39.1; 2024 = 38.8; 2025 = 37.7; 2026 = 37.5.
- o.w. Foreign-currency denominated: 2022 = 29.4; 2023 = 28.4; 2024 = 27.0; 2025 = 25.5; 2026 = 24.3.
- Money and credit:
- Credit to the private sector: 2022 = 16.5; 2023 = 15.1; 2024 = 12.2; 2025 = 8.7.
- In constant exchange rate: 2022 = 12.1; 2023 = 17.1; 2024 = 11.6.
- Broad money: 2022 = 14.9; 2023 = 12.3; 2024 = 11.3.
- Excluding FX deposits: 2022 = 22.9; 2023 = 26.9; 2024 = 12.6; 2025 = 12.7; 2026 = 11.7.
- Deposit dollarization (in percent of total): 2022 = 56.1; 2023 = 47.0; 2024 = 46.8; 2025 = 46.5; 2026 = 46.3.
- Credit dollarization (in percent of total): 2022 = 45.0; 2023 = 44.5; 2024 = 44.1; 2025 = 43.7; 2026 = 43.3.
- Credit to GDP (in percent) 2/: 2022 = 60.3; 2023 = 63.6; 2024 = 66.5; 2025 = 67.7.
- External sector (in percent of GDP unless otherwise stated):
- Current account balance (in billions of US$): 2022 = -1.1; 2023 = -1.4; 2024 = -2.0; 2025 = -2.1.
- Current account balance: 2022 = -4.5; 2023 = -6.0; 2024 = -5.8; 2025 = -5.5.
- Trade balance: 2022 = -20.4; 2023 = -18.8; 2024 = -19.8; 2025 = -20.0; 2026 = -20.1.
- Terms of trade (percent change): 2022 = 5.4; 2023 = 0.5; 2024 = -0.2; 2025 = 0.1.
- Gross international reserves (in billions of US$): 2022 = 4.9; 2023 = 5.0; 2024 = 5.6.
- In percent of IMF’s ARA metric 3/: 2022 = 102.3; 2023 = 100.3; 2024 = 96.1; 2025 = 99.1; 2026 = 100.0.
- Gross external debt: 2022 = 80.5; 2023 = 68.3; 2024 = 65.1; 2025 = 61.4; 2026 = 57.1.
Source: Georgia: Staff Concluding Statement of the 2024 Article IV Mission (March 18, 2024).
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