IMF Staff Country Reports

This Selected Issues paper discusses an application of the integrated policy framework (IPF) in Georgia. Georgia has experienced significant swings in both international and domestic demand for the lari in recent years. The IMF’s IPF offers guidance on how Georgia did and should respond to these. Prudent monetary and macro-prudential policy by the National Banking Group (NBG) has limited the need for further policy responses to these shocks. However, shallow foreign exchange (FX) markets in Georgia indicate that movements in the exchange rate can sometimes be inefficient—creating the potential for beneficial government FX intervention (FXI). This comes at a risk though and should be used cautiously. Reviewing the NBG’s major FXI operations since 2020, we find that—within the modeling framework—interventions benefited the economy in the short run. However, given the low level of reserves and the institutional conditions of the NBG, the risks and long run costs of FXI likely outweighed the benefits.