IMF Executive Board Concludes 2018 Article IV Consultation with Georgia

IMF News, June 28, 2018

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IMF Executive Board Concludes 2018 Article IV Consultation with Georgia

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Bibliographic details

• Published: June 28, 2018

Overview

• On June 27, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Georgia.
• Since the global financial crisis, macroeconomic performance in Georgia has been positive: growth exceeded most peers, policy frameworks were strengthened with inflation well-anchored, fiscal deficits were broadly well-managed, the banking sector remained stable despite a large exchange rate depreciation, and foreign reserves increased.

Recent macroeconomic performance (2017 and early 2018)

• Real GDP growth: 5 percent in 2107. (Text states "real GDP grew 5 percent in 2107.")
• Annual inflation: 6.7 percent at end-2017; fell to 2.5 percent in April 2018 as one-off shocks (increase in excises) dissipated.
• Fiscal position in 2017: remained stable while allowing a considerable ramp up in public investment, supported by revenue measures, strengthened recovery, and reduction in current spending.
• External accounts in 2017:
  • Current account deficit narrowed to 8.7 percent of GDP.
  • FDI reached 10.5 percent of GDP.
  • External debt (mostly concessional), excluding intercompany loans, was 96 percent of GDP in 2017.
• Drivers of growth: external demand, buoyant consumption, rapid growth in exports, tourism, and remittances.

Near-term outlook and risks

• Near-term outlook: improved moderately; the output gap is expected to close gradually in 2019–20.
• Medium- to long-term: growth expected to accelerate moderately and external vulnerabilities to decrease due to dividends from structural reforms.
• Risks (characterization: balanced):
  • Upside: stronger domestic and external demand; larger-than-anticipated impact from structural reforms could increase growth in outer years.
  • Downside: vulnerability to regional developments and market volatility in main trading partners; weaker growth in key advanced economies and retreat from cross-border integration could undermine export diversification efforts.
• Policy implication: stronger demand in the presence of structural bottlenecks could result in demand pressures and require policy tightening.

Policy recommendations and authorities' commitments

• Fiscal:
  • Authorities committed to fiscal sustainability.
  • In context of limited room to raise extra revenue, fiscal sustainability will be achieved by containing current spending while creating room for higher public investments.
  • In the medium run, spending to implement education reform will be ramped up and compensated by lower capital spending.
  • Steps taken to extend coverage and reporting of fiscal risk and to address issues with the VAT refund system.
  • Continue improving revenue administration, refund VAT credits, and narrow the fiscal deficit.
  • Revamp fiscal rule framework to improve fiscal governance and accountability.
• Monetary and financial:
  • Continue improving monetary and financial frameworks by strengthening the crisis management system, supporting development of capital markets, and providing incentives to de-dollarize.
  • Monetary policy focus: price stability supported by exchange rate flexibility and interventions to smooth excessive volatility and build reserves.
  • Strengthen inflation-targeting framework via improved liquidity management and communication.
  • Strengthen crisis management procedures, including implementing emergency liquidity assistance and banking resolution frameworks.
  • Contain credit to households by tightening prudential financial policies in light of indebtedness concerns.
• Structural reforms:
  • Authorities committed to ambitious structural reforms to promote private sector-led activity through improvement of business environment, economic diversification, and job creation.
  • Prioritize growth-enhancing measures: improve infrastructure, education, labor market policies, and competitiveness.
  • Mobilize foreign direct investment in export-oriented sectors.

Executive Board Assessment

• Directors agreed with the thrust of the staff appraisal.
• Commendations:
  • Strong economic performance under the EFF program, supported by favorable external conditions and prudent economic policies.
  • Strengthened confidence and improved growth.
• Observations and recommendations:
  • Outlook generally positive; risks balanced but Georgia remains vulnerable to external shocks and market volatility.
  • Continued commitment to sound policies and structural reforms necessary to preserve gains, address vulnerabilities, and foster stronger and more inclusive growth.
  • Support for prudent fiscal policies, rein in current spending, improve revenue administration, refund VAT credits, and narrow fiscal deficit.
  • Welcomed progress in coverage and reporting of fiscal risks; noted risks remain high, mainly from state-owned enterprises and power purchase agreements—encouraged further transparency and monitoring.
  • Monetary policy: appropriate focus on price stability; supported exchange rate flexibility and targeted interventions.
  • Encouraged strengthening inflation targeting through liquidity management and communication.
  • Commended central bank for strengthening financial supervision and regulatory framework, including implementing FSAP recommendations.
  • Supported measures to contain household credit and welcomed gradual de-dollarization as a sign of increased credibility in monetary policy.
  • Noted need to align crisis management framework with international best practices and improve crisis management procedures.

Selected economic and financial indicators (2015–19) — key figures preserved exactly as presented

• Real GDP (annual percentage change):
  • 2015: 2.9
  • 2016: 2.8
  • 2017: 4.3
  • 2018 (CR 17/361 Prel. Projections): 5.0
  • 2019: 4.2 and 4.8 (table lists two 2019 values under different columns)
• Nominal GDP (in billion of laris):
  • 2015: 31.8
  • 2016: 34.0
  • 2017: 37.3
  • 2018: 38.0
  • 2019: 40.1, 41.4, 44.8 (table lists multiple year/column entries)
• Nominal GDP (in billion of U.S. dollars):
  • 2015: 14.0
  • 2016: 14.4
  • 2017: 15.0
  • 2018: 15.2
  • 2019: 16.3, 16.9, 18.3
• GDP per capita (in thousand of U.S. dollars):
  • 2015: 3.8
  • 2016: 3.9
  • 2017: 4.1
  • 2018: 4.4
  • 2019: 4.5, 4.9
• CPI, End-of-period:
  • 2015: 1.8
  • 2016: 5.6
  • 2017: 6.7
  • 2018: 3.2
  • 2019: 2.7, 3.0
• Gross national saving (in percent of GDP):
  • 2015: 19.5
  • 2016: 19.9
  • 2017: 20.6
  • 2018: 23.2
  • 2019: 22.5, 25.5, 26.0
• Investment (in percent of GDP):
  • 2015: 31.5
  • 2016: 32.7
  • 2017: 31.0
  • 2018: 31.9
  • 2019: 33.1, 34.7, 35.2
  • Public investment (percent of GDP): 2015: 6.1; 2016: 6.8; 2017: 7.4; 2018: 8.1; 2019: 7.9
  • Private investment (percent of GDP): 2015: 25.9; 2016: 27.7; 2017: 25.2; 2018: 25.8; 2019: 26.6, 27.9
• Consolidated government operations:
  • Revenue and grants (percent of GDP): 2015: 28.1; 2016: 28.3; 2017: 28.9; 2018: 29.0; 2019: 28.6, 27.3
  • o.w. Tax revenue (percent of GDP): 2015: 25.1; 2016: 25.7; 2017: 25.6; 2018: 25.0; 2019: 24.7
  • Expenditures (percent of GDP): 2015: 32.0; 2016: 32.5; 2017: 33.0; 2018: 31.1
  • Current expenditures (percent of GDP): 2015: 24.2; 2016: 24.0; 2017: 23.1; 2018: (value shown in table)
  • Capital spending and budget lending (percent of GDP): 2015: 7.0; 2016: 8.3; 2017: 8.5; 2018: 8.1; 2019: 7.9
  • Net Lending/Borrowing (GFSM 2001): 2015: -1.3; 2016: -1.6; 2017: -1.1; 2018: -0.5; 2019: -1.5
  • Augmented Net lending / borrowing (Program definition) 2/: 2015: -2.7; 2016: -3.0; 2017: -3.6; 2018: -2.9; 2019: -2.8; (additional column) -2.6
• Public debt (percent of GDP):
  • 2015: 44.4
  • 2016: 42.3
  • 2017: 44.9
  • 2018: 42.7
  • 2019: 42.8, 43.5
  • o.w. NBG debt to the IMF: 2016: …; 2017: 0.5; 2018: 0.6; 2019: 1.0
  • o.w. Foreign-currency denominated (percent of GDP): 2015: 35.1; 2016: 35.6; 2017: 33.2
• Credit to the private sector (annual percentage change):
  • 2015: 22.1
  • 2016: 19.6
  • 2017: 10.1
  • 2018: 17.6
  • 2019: 14.3, 14.1, 10.6
  • In constant exchange rate: 2015: 12.0; 2016: 15.5; 2017: 20.1; 2018: 18.0; 2019: 10.7
• Broad money (annual percentage change):
  • 2015: 19.2
  • 2016: 20.4
  • 2017: 9.8
  • 2018: 14.8
  • 2019: 12.6, 11.0
  • Broad money (incl. fx deposits, annual percentage change): 2015: 23.4; 2016: 19.1; 2017: 13.7; 2018: 13.4; 2019: 10.5, 10.0
  • Additional series in table: 5.1; 13.3; 14.7; 16.2; 11.1
• Deposit dollarization (in percent of total):
  • 2015: 66.8
  • 2016: 69.9
  • 2017: 64.8
  • 2018: 63.7
  • 2019: 64.1, 59.7, 57.5
• Credit dollarization (in percent of total):
  • 2015: 63.1
  • 2016: 64.6
  • 2017: 54.7
  • 2018: 56.1
  • 2019: 54.1, 50.7, 48.3
• Credit to GDP:
  • 2015: 49.2
  • 2016: 54.9
  • 2017: 55.3
  • 2018: 57.8
  • 2019: 58.5, 60.6, 61.9
• External sector (in percent of GDP; unless otherwise indicated):
  • Current account balance:
  • 2015: -12.0
  • 2016: -12.8
  • 2017: -10.4
  • 2018: -8.7
  • 2019: -10.6, -9.2
  • Trade balance:
  • 2015: -28.1
  • 2016: -26.9
  • 2017: -25.8
  • 2018: -25.3
  • 2019: -26.4, -27.2, -27.1
  • Terms of trade (ratio): 2015: 100.0; 2016: 98.9; 2017: 99.1; 2018: 96.1; 2019: 99.3, 94.3, 94.5
  • Gross international reserves (in billions of US$): 2015: 2.5; 2016: 3.6
  • In percent of IMF Composite measure (floating): 2015: 89.9; 2016: 90.9; 2017: 93.3; 2018: 90.1; 2019: 95.2, 98.8
  • Gross external debt:
  • 2015: 107.6
  • 2016: 109.3
  • 2017: 106.9
  • 2018: 112.8
  • 2019: 106.4, 107.9
  • Gross external debt, excl. intercompany loans:
  • 2015: 86.1
  • 2016: 91.8
  • 2017: 87.4
  • 2018: 95.6
  • 2019: 86.5, 90.6
  • Laris per U.S. dollar (period average): 2015: 2.27; 2016: 2.37; 2017: 2.51
  • Laris per euro (period average): 2015: 2.52; 2016: 2.62; 2017: 2.83
  • REER (period average; CPI based, 2010=100): 2015: 104.0; 2016: 107.5

• Sources cited in the table: Georgian authorities; and Fund staff estimates.
• Footnotes present in source:
  • 1/ Please refer to this link for details http://www.imf.org/en/Publications/CR/Issues/2017/12/07/Georgia-First-Review-under-the-Extended-Fund-Facility-and-Request-for-Modification-of-45448 .
  • 2/ Augmented Net lending / borrowing (Program definition) = Net lending / borrowing - Budget lending.

IMF Communications Department — Press Release No. 18/266 (June 28, 2018).

Content in this bundle

• Pr18266g (PDF)

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Georgia and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/en/Publications/CR/Issues/2017/12/07/Georgia-First-Review-under-the-Extended-Fund-Facility-and-Request-for-Modification-of-45448
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home