{
  "title": "Public Information Notice: IMF Executive Board Concludes 2009 Article IV Consultation with Georgia",
  "publication": "IMF News, March 27, 2009",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0937",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2009-03-27",
  "sections": [
    {
      "heading": "Background",
      "content": "- Executive Board concluded the Article IV consultation with Georgia on March 23, 2009.1\n- Combined shocks: August 2008 armed conflict and the global crisis led to:\n  - Real GDP growth decline from 12½ percent in 2007 to an estimated 2 percent in 2008, after a sharp contraction in the second half of the year.\n  - Inflation slowed to 5½ percent at end-2008 as global food and energy prices receded and demand weakened.\n  - External current account deficit estimated at 22½ percent of GDP in 2008 but narrowed substantially in the second half of the year.\n  - Private capital inflows dropped from $1.7 billion during the first half of the year to an estimated $450 million during the second half.\n- Gross official reserves fell immediately after the conflict but recovered later, aided by:\n  - donor support,\n  - borrowing from the Fund under the Stand-By Arrangement approved last September,\n  - transfers from the sovereign wealth funds to government accounts in the central bank.\n- Fiscal and monetary developments:\n  - Fiscal deficit widened markedly in 2008; composition of spending shifted from high defense and election outlays in the first half to infrastructure and social spending in the second half.\n  - Monetary policy had focused on resisting inflationary pressures until the conflict, then faced declining demand for local currency and bank liquidity issues.\n  - Central bank intervened heavily in the foreign exchange market to support the lari.\n  - Banks stopped new lending despite central bank liquidity injections, reduced reserve requirements and policy rate cuts.\n- Banking sector vulnerabilities:\n  - Tightening of credit conditions and economic weakening exposed liquidity and solvency deterioration.\n  - Nonperforming loans increased sharply; need for loan-loss provisioning, higher funding costs and lost interest income affected profitability.\n- Structural reforms in early 2008:\n  - Gradual reduction of income and dividend taxes.\n  - Introduction of rules to guide fiscal and monetary policies in the medium term while ensuring public sector discipline and price stability."
    },
    {
      "heading": "Executive Board Assessment — Findings and Risks",
      "content": "- Directors observed that the Georgian economy was seriously affected by the August 2008 armed conflict and the global downturn.\n- Directors judged combined shocks to the current and capital accounts likely to be larger and more prolonged than originally expected, increasing external adjustment challenges and diminishing near-term growth prospects.\n- Directors endorsed the authorities’ economic strategy:\n  - Fiscal policy to support domestic demand.\n  - Exchange rate flexibility to achieve external stability.\n  - Structural reforms to secure sustained economic growth over the medium term.\n- Directors saw considerable downside risks to the economic outlook and recommended readiness to adapt policies as warranted.\n- Support for authorities’ plans:\n  - Contain slowdown through a donor-financed fiscal stimulus and reorientation of expenditures.\n  - Authorities reduced targeted 2009 fiscal deficit in line with a downward revision in expected official external financing.\n  - Expenditure switched from imported defense goods toward essential productivity-enhancing infrastructure investment and better targeted social spending.\n  - Directors welcomed planned expenditure management reforms.\n- Exchange rate and reserves:\n  - Move to foreign exchange auctions welcomed as important for greater exchange rate flexibility and protecting international reserves, which are relatively low.\n  - Agreed exchange rate flexibility needed to be managed to preserve confidence in the financial sector.\n  - Directors took note of the staff assessment that the real effective exchange rate is overvalued.\n  - Over the medium term, commitment to exchange rate flexibility and structural reforms should help correct the overvaluation and reduce vulnerabilities from the large underlying current account deficit.\n- Monetary policy and liquidity management:\n  - Recommended all instruments of monetary policy, including the interest rate and reserve requirements, be employed to support more cautious liquidity management and ease pressures on the foreign exchange market.\n  - Welcomed planned improvement of the central bank’s liquidity framework to strengthen effectiveness of interest rate policy.\n  - Stressed importance of closely coordinating fiscal and monetary policies to contain pressures in the foreign exchange market.\n- Financial sector stability:\n  - Close supervision emphasized given deterioration in banks’ loan portfolios and profitability.\n  - Welcomed Financial Supervisory Agency’s actions to increase provisioning based on bank-by-bank assessments.\n  - Noted upcoming technical assistance from the Fund to strengthen stress-testing capability.\n  - Endorsed authorities’ measures to bolster depositor confidence through increased transparency and adequate safety nets.\n  - Welcomed authorities’ commitment to developing a financial stability plan to respond to potential situations of stress."
    },
    {
      "heading": "Key Statistics — Georgia: Selected Economic Indicators, 2004–2008",
      "content": "- Real Sector\n  - Real GDP growth (percentage change): 2004: 5.9; 2005: 9.6; 2006: 9.4; 2007: 12.4; 2008: 2.0\n  - GDP (in millions of U.S. dollars): 2004: 5,126; 2005: 6,411; 2006: 7,768; 2007: 10,227; 2008: 12,870\n  - GDP per capita (in U.S. dollars): 2004: 1,188; 2005: 1,486; 2006: 1,800; 2007: 2,324; 2008: 2,925\n  - Inflation (in percent) — Period average: 2004: 5.7; 2005: 8.3; 2006: 9.2; 2007: 10.0; 2008: (no period-average value listed)\n  - Inflation (in percent) — End-of-period: 2004: 7.5; 2005: 6.2; 2006: 8.8; 2007: 11.0; 2008: 5.5\n- Central government operations (in percent of GDP)\n  - Revenue and grants: 2004: 23.1; 2005: 24.4; 2006: 26.7; 2007: 29.3; 2008: 30.7\n  - Expenditure and net lending: 2004: 20.7; 2005: 26.0; 2006: 29.7; 2007: 34.0; 2008: 37.1\n  - Overall balance (cash basis): 2004: 2.4; 2005: -1.6; 2006: -3.0; 2007: -4.7; 2008: -6.4\n- Monetary indicators\n  - Reserve money (end-of-period growth rate, in percent): 2004: 44.3; 2005: 19.7; 2006: 19.2; 2007: 25.6; 2008: -4.5\n  - Broad money (end-of-period growth rate, in percent): 2004: 42.6; 2005: 26.4; 2006: 39.3; 2007: 49.6; 2008: 7.0\n  - Broad money velocity: 2004: 7.64; 2005: 6.79; 2006: 5.18; 2007: 4.27; 2008: 4.48\n- External Sector\n  - Current account balance (including transfers) — In millions of U.S. dollars: 2004: -344; 2005: -701; 2006: -1,174; 2007: -2,006; 2008: -2,911\n  - Current account balance (including transfers) — In percent of GDP: 2004: -6.7; 2005: -10.9; 2006: -15.1; 2007: -19.6; 2008: -22.6\n  - External debt (in millions of U.S. dollars): 2004: 2,138; 2005: 2,095; 2006: 2,328; 2007: 3,136; 2008: 4,581\n  - External debt (in percent of exports of goods and services): 2004: 41.7; 2005: 32.7; 2006: 30.0; 2007: 35.6; 2008: (no value listed)\n  - Gross official international reserves (in millions of U.S. dollars): 2004: 352; 2005: 474; 2006: 881; 2007: 1,361; 2008: 1,480\n  - Gross official international reserves (in months of imports of goods and services): 2004: 1.3; 2005: 1.8; 2006: 2.2; 2007: 3.0; 2008: (no value listed)\n  - Exchange rate, lari/dollar, period average: 2004: 1.92; 2005: 1.81; 2006: 1.78; 2007: 1.66; 2008: 1.48\n\nSource: Public Information Notice (PIN) No. 09/37, March 27, 2009.\n\n---\n\n\n References\n\n- Georgia and the IMF\n- Public Information Notices\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0937"
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    "Published: March 27, 2009",
    "Executive Board concluded the Article IV consultation with Georgia on March 23, 2009.1",
    "Combined shocks: August 2008 armed conflict and the global crisis led to:",
    "Gross official reserves fell immediately after the conflict but recovered later, aided by:",
    "Fiscal and monetary developments:",
    "Banking sector vulnerabilities:",
    "Structural reforms in early 2008:",
    "Directors observed that the Georgian economy was seriously affected by the August 2008 armed conflict and the global downturn.",
    "Directors judged combined shocks to the current and capital accounts likely to be larger and more prolonged than originally expected, increasing external adjustment challenges and diminishing near-term growth prospects.",
    "Directors endorsed the authorities’ economic strategy:",
    "Directors saw considerable downside risks to the economic outlook and recommended readiness to adapt policies as warranted.",
    "Support for authorities’ plans:",
    "Exchange rate and reserves:",
    "Monetary policy and liquidity management:",
    "Financial sector stability:",
    "Real Sector",
    "Central government operations (in percent of GDP)",
    "Monetary indicators",
    "External Sector",
    "[Georgia and the IMF](http://www.imf.org/external/country/GEO/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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