International Monetary Fund

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Program Note


Last Updated: March 22, 2013

Current IMF-Supported Program

A 24-month Stand-By Arrangement (SBA) and a 24-month arrangement under the (concessional) Stand-By Credit Facility (SCF) were approved by the IMF's Executive Board on April 11, 2012. Under the program, Georgia will have access to IMF credits of up to SDR 250 million (250 percent of quota, or about US$386 million), evenly divided between the two arrangements. The authorities are treating the program as precautionary, and accordingly did not request the disbursement of the SDR 130 million made available since the completion of the first and second reviews on March 13, 2013. Performance under the program is monitored through semi-annual reviews. The third review mission is tentatively scheduled for September 2013.


The approval of the new arrangements took place less than a year after the successful completion, in June 2011, of the SBA approved in September 2008. The economic and financial policies implemented under the SBA were successful in stabilizing the economy after the August 2008 armed conflict and the global economic downturn, and in restoring conditions for strong economic growth:

  • In the first phase of that program, a sizeable fiscal stimulus package, financed by donors and liquidity injections into the banking system, helped mitigate the impact of the twin crises.
  • In its second phase, the focus turned to restoring investor confidence and, with it, the basis for sustained private sector–led economic growth. This was achieved primarily through fiscal consolidation (the government deficit was reduced to 3.6 percent of GDP in 2011 from 9.2 percent of GDP in 2009); allowing more exchange rate flexibility; and strengthening the monetary policy framework as well as the regulatory framework of the financial system. Georgia successfully returned to market financing in April 2011, with a 10-year US$500 million Eurobond issue, priced favorably at a yield of 7.125 percent. This was followed, in early 2012, by successful Eurobond issues by Bank of Georgia, Georgian Railways and Georgian Oil and Gas Corporation.

Despite a slowdown at the end of the year stemming from the uncertainty related to the October parliamentary elections and the ensuing political transition, Georgia’s overall economic performance in 2012 was strong. Growth reached 6.1 percent, driven by manufacturing, construction, tourism, and financial services. As a result, the unemployment rate is expected to have declined further, down from 15.1 percent in 2011. Inflation continued to fall, to -1.4 percent at end-2012 from its peak of almost 15 percent in May 2011, helped by lower food and energy prices and lari appreciation. The external current account deficit remained high, though, at 12 percent of GDP, reflecting an increase in the trade deficit to 26 percent of GDP, which was offset by increases in tourist receipts and investment income. Stronger-than-expected capital inflows financed the high current account deficit, allowing the National Bank of Georgia to accumulate international reserves above its target, to US$2.9 billion (3.6 months of projected 2013 imports) by end-year.

The outlook for 2013 remains broadly favorable, with the economic slowdown observed in late 2012 expected to be temporary, and inflation to remain well below the central bank’s target. Further fiscal consolidation, exchange rate flexibility, and structural reforms aimed at boosting Georgia’s competitiveness should contribute to reducing the current account deficit.

Role of the IMF

Although Georgia has rebounded well from the twin crises of 2008–09, its large current account deficit and external financing needs remain a source of vulnerability, particularly against a background of unsettled international economic and financial conditions. In this context, the main objectives of the current arrangements with the IMF are to:

  • Support the authorities’ economic and financial program for 2013–14, which aims at completing Georgia’s post-crisis macroeconomic adjustment process;
  • Further strengthen market confidence and catalyze continued financial support by donors; and
  • Provide precautionary access to IMF resources to cover potential balance-of-payments gaps in the event downside risks materialize.

The economic program is based on the following macroeconomic policies:

  • Further fiscal consolidation (the fiscal deficit is targeted to decline from 3.6 percent of GDP in 2011 to 2.8 percent of GDP in 2013) to help ensure public debt sustainability and macroeconomic stability. This consolidation is consistent with a significant increase in social expenditures, financed mainly though the streamlining of capital spending.
  • Exchange rate flexibility to facilitate external adjustment;
  • Continued transition to an inflation-targeting regime to consolidate the gains achieved in terms of price stability; and
  • Enhanced monitoring of banking sector risks, strengthened regulatory framework of the financial system, and containment of noncore funding, to increase resilience to shocks.

In addition, the program supports the government’s ambitious structural agenda. This agenda aims at improving the business environment and boosting competitiveness, and includes reforms to support trade, strengthen competition, address skill mismatches, and strengthen business and property rights.

The IMF’s program engagement is supported by the provision of technical assistance to strengthen pubic financial management and fiscal transparency, improve revenue administration, enhance national accounts and external sector statistics, modernize the payment system, and further strengthen banking supervision.

Challenges Ahead

The main near-term policy challenges will be to further strengthen investor confidence to foster sustained private sector–led growth, contain public spending in the run-up to the 2013 presidential election, allow exchange rate flexibility to facilitate the external adjustment, and manage capital inflows to prevent a build-up of new vulnerabilities. The main challenge in the medium term is to transition to sustainable and inclusive growth while maintaining macroeconomic stability and strengthening the economy’s competitiveness.