Press Release: IMF Approves Third Annual ESAF Loan for Georgia
IMF News, July 28, 1998
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- Published: July 28, 1998
Overview
- The IMF approved the third annual loan under the Enhanced Structural Adjustment Facility (ESAF) in an amount equivalent to SDR 55.5 million (about US$74 million) to support Georgia’s economic program in 1998.
- The loan is available in two equal installments, the first of which is available immediately.
Background
- During the last three years, Georgia has:
- Achieved economy growth at annual rates of more than 10 percent for two consecutive years.
- Seen real wages starting to recover.
- Reduced inflation from hyperinflation in 1993/94 to single-digit levels.
- Improved the international reserve position significantly.
- Key contributors to success:
- Increase in tax collection.
- Reduction in the overall fiscal deficit.
- Prudent monetary and credit policies that contributed to lower inflationary expectations.
Medium-Term Strategy and the 1998 Program
- Government medium-term aims:
- Consolidate macroeconomic stabilization gains.
- Achieve greater external viability.
- Accelerate structural reforms.
- Keep the economy on a sustainable growth path while strengthening the social safety net.
- Main macroeconomic objectives for 1998-2000:
- Annual growth rate of 8-10 percent.
- Inflation rate of 4 percent by 2000.
- Increase central bank gross reserves to the equivalent of 2.8 months of imports by 2000.
- 1998 program targets:
- GDP growth of 10 percent.
- Fall in the inflation rate to 6 percent.
- Increase in gross official reserves equivalent to about 2.3 months of imports.
- Overall fiscal deficit narrowing to 2.5 percent of GDP in 1998 from about 3.8 percent of GDP in 1997, as a result of increasing revenue while allowing expenditure to continue to rise moderately.
- Expenditure arrears targeted to be eliminated by the end of December 1998.
- Support from prudent monetary and credit policies.
Structural Reforms
- Structural policy priorities:
- Urban and industrial land privatization.
- Faster privatization of medium and large-scale enterprises.
- Removing trade restrictions.
- Restructuring the electricity sector.
- Strengthening of banks’ prudential regulations.
- Judicial reform to ensure effective implementation of laws enacted by the Georgian parliament during the last two years.
Addressing Social Needs
- Poverty alleviation remains a key consideration.
- Authorities intend to:
- Protect the poor and improve the targeting of benefits.
- Give priority to eliminating arrears on wages, pensions, and social transfers.
- Increase government spending on health and education to 21 percent of total budgetary appropriations in 1998.
The Challenge Ahead
- Authorities have a positive record of achievement under the first and second annual ESAF programs.
- The 1998 program is described as strong and designed to keep Georgia on a path of sustained economic growth and low inflation.
- The program is said to deserve international support.
- Membership and IMF position:
- Georgia joined the IMF on May 5, 1992.
- Its quota is SDR 111.0 million (about US$148 million).
- Its outstanding use of IMF credit currently totals SDR 189 million (about US$252 million).
Georgia: Selected Economic and Financial Indicators, 1994-98 (selected figures)
- National income and prices (percentage change, unless otherwise indicated)
- Nominal GDP: 8,273; 169; 55; 19; 17
- GDP at constant prices: -11; 2; 11; 10
- Consumer price index, period average: 15,607; 162.7; 39.4; 7.1; 6.5
- Consumer price index, end-period: 6,474; 57.4; 13.7; 7.3; 6.0
- General government (in percent of GDP, unless otherwise indicated)
- Total revenue: 15,022; 227; 145; 46; 42
- Total expenditure (excluding net lending): 5,376; 33; 88; 21; 13
- Money, credit, and interest rates (end-period)
- Reserve money: 2,480; 275; 36; 12
- Credit to enterprises and households (banking system): 3,663; 39; -15; 38; 41
- Broad money (including forex deposits): 2,342; 135; 26
- Velocity, level: 17.9; 20.5; 22.3; 18.2; 16.9
- Money multiplier: 1.87; 1.17; 1.23; 1.35; 1.52
- Deposit interest rate (in percent; 3 month maturity): 49; 14
- Lending interest rate (in percent; 3 month maturity): 115; 66; 51
- Gross international reserves
- In months of imports of goods: 0.7; 2.7; 2.5; 2.2; 2.3
- In millions of US$: 157; 158; 173; 210
- Exchange rate, lari per US$ (end-period): 1.28; 1.27; 1.30
- Fiscal indicators (in percent of GDP)
- Revenue (excluding grants): 4.2; 5.1; 8.1; 10.0; 12.1
- Tax revenue: 3.7; 4.6; 6.9; 8.8; 10.3
- Tax revenue (in percent of current expenditure): 17.0; 53.3; 53.8; 66.0; 81.6
- Expenditure: 23.5; 11.6; 14.1; 14.4; 13.9
- Net lending: -0.2; 0.1; 0.5
- Fiscal balance, cash basis: -7.4; -4.5; -4.4; -3.8; -2.5
- Fiscal balance, commitment basis: -16.5; -5.3; -4.1; -1.5
- External sector (goods only; in US$ terms)
- Exports: ...; -5; 15
- Imports: -6; 23
- Trade balance: -29; -12; -8; -9
- Current account balance excluding official transfers: -36; -14; -10
- Current account balance including official transfers: -22; -7
Notes provided in the original text:
- For 1998, excludes the programmed reduction of lari 70 million in expenditure arrears. Inclusive of this reduction in expenditure arrears, the nominal increase in expenditures during 1998 relative to the 1997 level would be 20 percent.
- Goods only; in US$ terms.
- The sharp fall in 1996 reflects the provision made for non-performing loans from commercial banks portfolio in the context of the bank restructuring program. Inclusive of this adjustment, credit to enterprises and households would have grown by about 30 percent in nominal terms during 1996.
- Lari replaced the Georgian coupon in September/October 1995 at a conversion rate of 1 lari/1million coupon. This rate is used to convert coupons to lari for the period prior to September 1995.
- Includes general government tax revenue and special state funds. The latter include the Pension, Employment, and Road Funds. Privatization revenue is excluded.
- For 1998, excludes the programmed reduction of lari 70 million in expenditure arrears. Inclusive of this reduction in expenditure arrears, total expenditure arrears, total expenditure in 1998 (excluding net lending) would amount to 14.7 percent og GDP.
- The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.
- A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.
Press Release No. 98/33; July 28, 1998