## Press Release: IMF Staff Statement at the End of a Review Mission to Georgia _IMF News, December 8, 2015_ ## Source details **Canonical URL:** [Press Release: IMF Staff Statement at the End of a Review Mission to Georgia](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr15552) ## Other formats - [Markdown version](/en/news/articles/2015/09/14/01/49/pr15552/index.md) - [Structured JSON version](/en/news/articles/2015/09/14/01/49/pr15552/index.json) - [Bundle manifest](/en/news/articles/2015/09/14/01/49/pr15552/bundle-manifest.json) ## Bibliographic details - Published: December 8, 2015 --- ### Mission and context - IMF mission led by Mark Griffiths visited Tbilisi November 9-21, 2015 to conduct discussions on the second and third reviews under Georgia’s Stand-By Arrangement (SBA) with the IMF. - Statement issued on December 8, 2015 by Mr. Griffiths. - IMF Communications Department contact information provided: Media Relations E-mail: media@imf.org; Phone: 202-623-7100. - End-of-Mission press releases convey preliminary findings of IMF staff teams and do not necessarily represent the views of the IMF’s Executive Board. ### Economic assessment and growth projections - The Georgian Lari depreciated by more than 35 percent against the U.S. dollar over the past year. - Growth forecasts: - 2.5 percent in 2015. - 3 percent in 2016. - Inflation: Has picked up but should end the year only slightly above the National Bank of Georgia’s (NBG) inflation target of 5 percent. - Downside risk to the forecast mainly from further deterioration in trading partner economies. ### External sector, trade, and balance of payments - External shock effects: - Slowdown and currency depreciations in main trading partners lowered Georgia’s exports and remittances. - Worldwide strengthening of the U.S. dollar contributed to Lari depreciation. - Current account: - Projected to widen to 11 percent of GDP in 2015. - Expected to improve to about 9 percent of GDP in 2016. - External debt around 100 percent of GDP; current account deficit will need to fall further over the medium term to improve sustainability. - Trade developments: - Exports and remittances have bottomed out; tourist inflows are growing again. - Imports fell by 8 percent in the third quarter compared to the last year (16 percent excluding one-offs). - Policy view: Depreciation has helped absorb the external shock by reducing imports, preserving competitiveness of domestic producers, and protecting the value of remittances. ### Fiscal performance and the 2016 draft budget - Total government revenue expected to increase in 2015 because tax revenue performed well and non-tax revenue and grants were higher than projected. - Fiscal deficit: - Expected to be at or only slightly above the 3 percent of GDP target in the original budget for 2015 despite higher spending. - The 3 percent of GDP fiscal deficit proposed in the 2016 draft budget should support inclusive growth and improve external stability. - Spending pressures: - Higher-than-projected spending on universal healthcare, subsidies, and reconstruction works caused by the June floods. - Health spending in 2015 has been much higher than budgeted. - Fiscal risk management recommendations: - Monitor healthcare spending closely in 2016 and introduce efficiency savings. - Have contingency plans if spending overruns persist to keep the deficit to 3 percent of GDP. - Manage fiscal risks from government guarantees carefully, including guarantees to backstop power-purchase agreements for hydropower investment. - Put in place a framework in line with best international practice to monitor, assess, and fully disclose fiscal risks from such guarantees. ### Financial sector, exchange rate policy, and the NBG - The mission strongly supports the NBG’s policy to allow the Lari to float and to limit foreign exchange interventions only to dampen excess exchange rate volatility. - Rationale: - Intervening to resist likely long-lasting external shocks would not succeed and would only waste foreign currency reserves. - A floating exchange rate is required to achieve the NBG’s main objective of price stability. - To continue fulfilling price stability and safeguard financial stability, the NBG should have full operational independence. - Constitutional Court ruling pending on legislation that removes banking supervision from the NBG. - Important that banking supervision remains independent of political and industry interference and of high quality. - The mission and the authorities aim to agree on a strategy to keep banking supervision independent and to ensure a sufficient level of foreign reserves. ### Agreements, next steps, and structural reforms - Substantial progress toward reaching a staff-level agreement on the second and third reviews. - Mission will finalize the letter of intent with the authorities in the coming weeks, including agreement on: - Strategy to keep banking supervision independent. - Ensuring sufficient level of foreign reserves. - Improving the framework for managing and disclosing contingent liabilities. - Structural reforms to promote growth. - If final discussions are successful, the second and third reviews can be completed in early 2016. - The mission thanked the President, the Prime Minister, other members of the government, and the NBG for open and constructive discussions. ### Key statistics and exact figures cited - Visit dates: November 9-21, 2015. - Statement date: December 8, 2015. - Lari depreciation: more than 35 percent against the U.S. dollar over the past year. - Growth forecasts: 2.5 percent in 2015; 3 percent in 2016. - NBG inflation target: 5 percent. - Current account deficit: projected 11 percent of GDP in 2015; about 9 percent of GDP in 2016. - Imports: fell by 8 percent in the third quarter compared to the last year (16 percent excluding one-offs). - External debt: around 100 percent of GDP. - Fiscal deficit target/proposal: 3 percent of GDP. *International Monetary Fund, Press Release: IMF Staff Statement at the End of a Review Mission to Georgia (December 8, 2015).* --- ## References - [Georgia and the IMF](http://www.imf.org/external/country/GEO/index.htm) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr15552_