IMF Executive Board Concludes 2024 Article IV Consultation with Georgia
IMF News, May 24, 2024
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Bibliographic details
- Published: May 24, 2024
Macroeconomic outlook
- Financial inflows triggered by Russia’s war in Ukraine continue to moderate but remain above pre-war levels, supporting a positive macroeconomic outlook.
- 2024 expectations:
- Growth is expected to ease but remain above trend.
- Inflation is expected to pick-up as monetary policy continues to normalize.
- The current account deficit is expected to widen from historic lows.
- Medium-term convergence (staff projections):
- Growth would converge to its potential rate of 5 percent.
- Inflation to the National Bank of Georgia’s (NBG) 3 percent target.
- Current account deficit to 5.5 percent of GDP, supported by continued improvements in services exports.
Risks to the outlook
- Downside risks:
- A reversal of war-related migrant and financial inflows.
- Intensification of sanctions that affect Georgia and geo-economic fragmentation.
- A loss of reform momentum before the October Parliamentary elections.
- Growing concerns about governance.
- Mitigating factors:
- Replenished fiscal and reserve buffers.
- Abundant bank capital and FX liquidity.
- Upside potential:
- EU candidate status could send a positive signal, including for investments, if reforms gain impetus to move the accession process forward.
Policy stance and recent actions
- Monetary policy and central bank governance:
- The NBG has maintained a tight monetary policy stance, normalizing the policy rate gradually, while using macroprudential measures to address systemic risks.
- Despite significant foreign exchange purchases, reserves fell below the IMF’s adequacy metric.
- There remain gaps in the NBG Law regarding NBG governance and independence.
- Fiscal policy and public finances:
- Adequate buffers have been maintained under the fiscal rules.
- Good progress on evaluating tax expenditures and strengthening public investment management.
- Progress has been slow on developing a Medium-Term Revenue Strategy.
- Slow progress on reforming SOEs to limit their fiscal risks.
- Structural and labor-market policies:
- Authorities have taken significant steps to address entrenched high unemployment and diversify the economy, including by pursuing trade agreements and infrastructure investments.
- Challenges remain in improving the quality of education and productivity, particularly in the agricultural sector, and in bolstering the judicial system and the anti-corruption authority to strengthen governance.
- Financial sector:
- Banking system resilience noted; proactive use of macroprudential and prudential measures.
- System remains highly concentrated and dollarized.
Executive Board assessment and policy recommendations
- General view:
- Directors agreed with the thrust of the staff appraisal and welcomed Georgia’s resilience in the face of multiple shocks.
- Directors noted continued strong macroeconomic performance but emphasized high global uncertainty and significant downside risks.
- Importance of continued Fund engagement to support resilience, structural reform, inclusive job-rich growth, and EU accession progress.
- Fiscal policy recommendations:
- Support for continued modest medium term fiscal adjustment to ensure sufficient buffers under the fiscal rule, while creating room for social and infrastructure spending.
- Adjustment should be underpinned by a medium-term revenue strategy focused on streamlined tax expenditures and improved revenue administration, along with enhanced spending prioritization and efficiency.
- Prioritize state owned enterprise reform, particularly to strengthen oversight and governance.
- Encourage steadfast implementation of renewable energy development strategies.
- Monetary and exchange rate policy recommendations:
- Commended the NBG’s prudent approach.
- Recommended a gradual and cautious, data driven approach to further policy rate cuts and clear communication to anchor inflation expectations.
- Emphasized strengthening the NBG’s governance framework and independence to safeguard monetary policy credibility.
- Called for continued exchange rate flexibility and reserve accumulation, given high exposure to external shocks.
- Financial sector recommendations:
- Maintain adequate capital and liquidity buffers amid high uncertainty in global financial conditions.
- Address high concentration and dollarization by improving competition in the banking system and strengthening macroeconomic policy frameworks.
- Urged continued vigilance against risks from capital inflows, virtual assets, and sanctions, and underscored the importance of strong AML/CFT controls.
- Structural reforms and governance:
- Continue efforts to enhance infrastructure investments to foster regional connectivity and further diversify the economy.
- Enhance quality of education and improve agricultural productivity to address low rural labor force participation.
- Improve governance and anti-corruption frameworks; reform of the judicial system and the anti-corruption authority is important to improve the business environment.
Key economic and financial indicators (selected, 2022–2026)
- Real GDP (annual percentage change):
- 2022: 11.0
- 2023: 7.5
- 2024: 5.7
- 2025: 5.2
- 2026: 4.7
- Nominal GDP (in billion of laris):
- 2022: 72.9
- 2023: 80.2
- 2024: 88.6
- 2025: 97.6
- 2026: 106.1
- Nominal GDP (in billion of U.S. dollars):
- 2022: 25.0
- 2023: 30.5
- 2024: 32.9
- 2025: 35.6
- 2026: 38.2
- GDP per capita (in thousand of U.S. dollars):
- 2022: 6.8
- 2023: 8.2
- 2024: 8.8
- 2025: 9.6
- 2026: 10.3
- GDP deflator, period average:
- 2022: 8.1
- 2023: 2.5
- 2024: 4.4
- 2025: 3.8
- CPI, period average:
- 2022: 11.9
- 2023: 2.6
- 2024: 4.2
- 2025: 3.4
- CPI, end-of-period:
- 2022: 9.8
- 2023: 0.4
- 2024: 4.0
- 2025: 3.7
- 2026: 3.0
- Consolidated government operations (in percent of GDP):
- Revenue and grants:
- 2022: 26.5
- 2023: 27.6
- 2024: 28.1
- 2025: 27.7
- o.w. Tax revenue:
- 2022: 23.7
- 2023: 24.6
- 2024: 25.5
- 2025: 25.4
- Total Expenditure:
- 2022: 29.0
- 2023: 29.9
- 2024: 30.7
- 2025: 29.8
- Current expenditures:
- 2022: 21.4
- 2023: 22.3
- 2024: 23.1
- 2025: 23.3
- 2026: 23.2
- Net acquisition of nonfinancial assets:
- 2022: 7.6
- 2023: 6.6
- 2024: 6.5
- Net lending/borrowing (GFSM 2001):
- 2022: -2.6
- 2023: -2.3
- 2024: -2.5
- 2025: -2.2
- Augmented net lending/borrowing 1/:
- 2022: -3.1
- Public debt:
- 2022: 39.2
- 2023: 38.8
- 2024: 37.8
- 2025: 37.5
- o.w. Foreign-currency denominated:
- 2022: 29.4
- 2023: 28.5
- 2024: 27.0
- 2025: 25.6
- 2026: 24.3
- Money and credit:
- Credit to the private sector:
- 2022: 16.5
- 2023: 15.0
- 2024: 12.2
- 2025: 8.7
- In constant exchange rate:
- 2022: 12.1
- 2023: 17.1
- 2024: 16.4
- 2025: 11.6
- Broad money:
- 2022: 14.9
- 2023: 12.5
- 2024: 12.3
- 2025: 11.3
- Excluding FX deposits:
- 2022: 22.9
- 2023: 26.9
- 2024: 12.9
- 2025: 12.7
- 2026: 11.7
- Deposit dollarization (in percent of total):
- 2022: 56.1
- 2023: 47.0
- 2024: 46.8
- 2025: 46.5
- 2026: 46.3
- Credit dollarization (in percent of total):
- 2022: 45.0
- 2023: 44.5
- 2024: 44.1
- 2025: 43.7
- 2026: 43.3
- Credit to GDP (in percent) 2/:
- 2022: 60.3
- 2023: 63.8
- 2024: 66.5
- 2025: 67.7
- External sector (in percent of GDP; unless otherwise indicated):
- Current account balance (in billions of US$):
- 2022: -1.1
- 2023: -1.3
- 2024: -1.9
- 2025: -2.0
- 2026: -2.1
- Current account balance:
- 2022: -4.5
- 2023: -4.3
- 2024: -5.8
- 2025: -5.6
- 2026: -5.5
- Trade balance:
- 2022: -20.4
- 2023: -20.0
- 2024: -20.8
- 2025: -20.9
- Terms of trade (percent change):
- 2022: 5.4
- 2023: 0.5
- 2024: -0.2
- 2025: 0.1
- Gross international reserves (in billions of US$):
- 2022: 4.9
- 2023: 5.0
- 2024: 5.6
- In percent of IMF ARA metric 3/:
- 2022: 102.2
- 2023: 95.5
- 2024: 94.8
- 2025: 97.8
- 2026: 99.7
- Gross external debt:
- 2022: 81.0
- 2023: 70.2
- 2024: 66.7
- 2025: 62.8
- 2026: 58.5
Institutional note
- It is expected that the next Article IV consultation with Georgia will be held on the standard 12-month cycle.
Press Release No. 24/181 — IMF Communications Department, May 24, 2024