IMF Executive Board Completes the Eighth Review under the Extended Fund Facility for Georgia
IMF News, April 12, 2021
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- Published: April 12, 2021
Overview and program completion
- The Executive Board completed the Eighth Review of Georgia’s economic reform program under a four-year Extended Fund Facility (EFF) on April 9, on a lapse of time basis.
- Completion of the eighth review will release SDR 78 million (about $111 million), bringing total disbursements to SDR 484 million (about $687 million).
- The completion of the eighth review concludes the EFF-supported program, which has helped strengthen the economy’s resilience to shocks and supported Georgia’s navigation of the COVID-19 pandemic fallout.
Macroeconomic performance and outlook
- Output contracted by 6.2 percent in 2020.
- Under the baseline, a strong recovery is expected to commence in the second quarter of 2021.
- Output is projected to expand by 3.5 percent in 2021.
- Selected historical and projected national accounts and price indicators:
- Real GDP: 4.8 (2018), 5.0 (2019), -5.1 (2020), -6.2 (preliminary), 3.5 (2021), 5.8 (2022)
- Nominal GDP (in billion of laris): 44.6 (2018), 49.3 (2019), 49.9 (2020), 49.4 (2021), 53.3 (2022), 59.3 (2022)
- Nominal GDP (in billion of U.S. dollars): 17.6 (2018), 17.5 (2019), 16.2 (2020), 15.9 (2021), 18.1 (2022)
- GDP per capita (in thousand of U.S. dollars): 4.7 (2018), 4.4 (2019), 4.3 (2020), 4.9 (2021)
- GDP deflator, period average: 5.2 (2018), 6.9 (2019), 3.8 (2020)
- CPI, Period average: 2.6 (2018), 2.7 (2019), — (2020)
- CPI, End-of-period: 1.5 (2018), 7.0 (2019), 2.4 (2020)
Fiscal position and policy recommendations
- The 2021 budget provides additional targeted support to vulnerable households and businesses.
- If more fiscal support is needed due to a new wave of the pandemic, reprioritizing spending should be the first line of defense.
- Increased public debt and sizable contingent liabilities make strict adherence to the fiscal rule especially important to preserve credibility.
- Proactive monitoring of fiscal risks is essential; advancing state owned enterprise reform would help control and mitigate those risks.
- Selected consolidated government indicators:
- Revenue and grants: 27.1 (2018), 24.9 (2019), 25.1 (2020), 25.2 (2021), 25.7 (2022)
- o.w. Tax revenue: 23.4 (2018), 23.7 (2019), 21.8 (2020), 22.2 (2021), 22.6 (2022), 23.1 (2022)
- Expenditures: 29.2 (2018), 29.6 (2019), 34.2 (2020), 34.9 (2021), 33.3 (2022), 30.1 (2022)
- Net Lending/Borrowing (GFSM 2001): -0.8 (2018), -1.8 (2019), -8.8 (2020), -9.2 (2021), -7.4 (2022), -3.7 (2022)
- Augmented Net lending / borrowing (Program definition)2/: -2.3 (2018), -2.1 (2019), -9.0 (2020), -9.3 (2021), -7.6 (2022), -4.0 (2022)
- General government debt3/: 38.9 (2018), 40.4 (2019), 56.3 (2020), 60.0 (2021), 60.8 (2022), 58.2 (2022)
- o.w. Foreign-currency denominated: 31.6 (2018), 32.0 (2019), 44.3 (2020), 47.5 (2021), 49.6 (2022), 45.5 (2022)
Monetary policy, exchange rate, and external sector
- The lari experienced repeated bouts of pressure due to consecutive shocks (travel restrictions in the second half of 2019, the pandemic in early 2020, and spillovers of trading partner currency volatility).
- The National Bank of Georgia (NBG) remains appropriately focused on achieving its inflation target; the inflation targeting framework combined with a floating exchange rate regime continues to serve Georgia well.
- The most recent policy rate increase responds to elevated inflation expectations after a period of inflation exceeding its target; further increases in the policy rate may be needed if external pressures persist.
- Foreign exchange intervention should remain aimed at preventing disorderly market conditions.
- Selected external sector indicators:
- Gross international reserves (in billions of US$): 3.3 (2018), 3.6 (2019), 3.9 (2020), 4.0 (2021)
- In percent of IMF Composite measure (floating): 95.3 (2018), 98.2 (2019), 105.4 (2020), 111.0 (2021), 97.8 (2022), 98.9 (2022)
- Current account balance (in percent of GDP): -6.8 (2018), -9.8 (2019), -12.3 (2020), -10.9 (2021), -7.9 (2022)
- Trade balance (in percent of GDP): -23.4 (2018), -21.3 (2019), -17.1 (2020), -19.8 (2021), -18.9 (2022), -18.0 (2022)
- Gross external debt: 101.0 (2018), 105.6 (2019), 127.0 (2020), 124.8 (2021), 133.9 (2022), 126.2 (2022)
- Gross external debt, excl. intercompany loans: 82.9 (2018), 86.9 (2019), 103.8 (2020), 104.1 (2021), 110.3 (2022), 103.9 (2022)
- Laris per U.S. dollar (period average): 2.53 (2018), 2.82 (2019), … (2020), 3.11 (2021)
- Laris per euro (period average): 2.99 (2018), 3.15 (2019), 3.55 (2020)
- REER (period average; CPI based, 2010=100): 106.2 (2018), 100.5 (2019), 97.5 (2020)
Financial sector resilience and supervision
- The financial sector remained profitable in 2020 and the banking system maintained sufficient capital buffers to withstand the COVID-19 shock, reflecting the effectiveness of the supervisory regime before the crisis.
- Supervisors should calibrate policies that balance support for the recovery with proactive measures to address increases in non-performing loans.
- The new bank resolution framework will further strengthen financial resilience.
- Selected money and credit indicators:
- Credit to the private sector (percent of GDP): 57.4 (2018), 62.8 (2019), 72.6 (2020), 76.6 (2021), 75.5 (2022), 73.5 (2022)
- Credit to the private sector (in percent; unless otherwise indicated): 19.9 (2018), 20.7 (2019), 17.1 (2020), 22.4 (2021)
- In constant exchange rate: 17.7 (2018), 16.1 (2019), 10.0 (2020), 9.0 (2021), 5.5 (2022)
- Broad money: 13.9 (2018), 14.3 (2019), 24.6 (2020), 16.9 (2021)
- In constant exchange rate (estimate): 15.1 (2018), 8.8 (2019), 14.4 (2020), 15.8 (2021)
- Broad money (excl. fx deposits): 18.8 (2018)
- Deposit dollarization (percent of total): 63.1 (2018), 64.0 (2019), 64.1 (2020), 67.5 (2021), 67.0 (2022), 66.2 (2022)
- Credit dollarization (percent of total): 57.1 (2018), 55.4 (2019), 56.9 (2020), 55.7 (2021), 55.0 (2022), 54.9 (2022)
Structural reform priorities
- In addition to prudent macroeconomic policies, advancing the structural reform agenda is essential for a durable and inclusive recovery.
- Near-term priorities identified:
- Operationalizing the insolvency framework to deal with the aftermath of the COVID-19 shock.
- Education reform.
Source: IMF Press Release No. 21/106, "IMF Executive Board Completes the Eighth Review under the Extended Fund Facility for Georgia."
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- Pr21106 Geo Imf Executive Board Completes the Eighth Review Under the Extended Fund Facility for G
