Georgia: Selected Issues

IMF Staff Country Reports, May 24, 2024

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Georgia: Selected Issues

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Bibliographic details

• Published: May 24, 2024
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400275081.002

Executive summary

• This Selected Issues paper explores drivers of inflation and monetary policy in Georgia.
• Inflation spiked in Georgia following the pandemic and Russia’s war in Ukraine.
• A positive output gap indicates that high demand is generating inflationary pressure in the economy.
• Estimates suggest tighter monetary policy in 2021 helped significantly lower peak inflation in 2022.
• One response to uncertainty is for monetary policy makers to act more cautiously – responding less vigorously with monetary policy to shocks.
• Using a range of approaches, IMF establish that monetary policy in Georgia is effective, that it is close to neutral, and that heightened uncertainty supports a gradual policy normalization.

Analysis of inflation drivers and transmission

• Drivers identified:
  • Pandemic-related disruptions.
  • Russia’s war in Ukraine.
  • High domestic demand evidenced by a positive output gap.
• Transmission considerations:
  • The paper examines the monetary policy stance including the natural rate.
  • The transmission mechanism is assessed, including the impact of dollarization in a highly dollarized, small open-economy prone to large external shocks.

Monetary policy stance and effectiveness

• Key findings:
  • Tighter monetary policy in 2021 helped significantly lower peak inflation in 2022.
  • Monetary policy in Georgia is effective.
  • Monetary policy is close to neutral.
  • Heightened uncertainty supports a gradual policy normalization rather than abrupt tightening.

Policy implications and recommended approach

• Given the challenges (high dollarization, small open economy, large external shocks), the paper highlights the importance of:
  • Assessing drivers of inflation comprehensively.
  • Evaluating the natural rate and appropriate policy path going forward.
  • Recognizing that elevated uncertainty argues for cautious, gradual policy adjustments (responding less vigorously to shocks).

Publication metadata and identifiers

• Pages: 29
• Volume: 2024
• Issue: 136
• Series: Country Report No. 2024/136
• DOI: https://doi.org/10.5089/9798400275081.002
• Stock No: 1GEOEA2024002
• ISBN: 9798400275081
• ISSN: 1934-7685
• Publication date on page: May 24, 2024
• Subjects: Employment, Inflation, International organization, Labor, Labor markets, Monetary policy, Prices, Unemployment
• Keywords: Central Asia, commodity import price index, Employment, Georgia population projection, IMF staff calculation, Inflation, inflation projection, Labor markets, Middle East, trend inflation, Unemployment

International Monetary Fund. Middle East and Central Asia Dept. "Georgia: Selected Issues", IMF Staff Country Reports 2024, 136 (2024).

Content in this bundle

• Georgia: Selected Issues; IMF Country Report No. 24/136; April 29, 2024
  • Georgia: Selected Issues; IMF Country Report No. 24/136; April 29, 2024 (Markdown version)
  • Georgia: Selected Issues; IMF Country Report No. 24/136; April 29, 2024 (PDF)