For more information, see Georgia and the IMF

Georgia: Enhanced Structural Adjustment Facility Policy Framework Paper, 1997-1999

Table 1. Georgia: Policy Matrix 1997-99


Policy Area

Objectives and Targets

Strategies and Measures

Implementation

TA Requirements


1. Fiscal policy and public sector reform        
a. Revenue Improve the revenue raising capacity as well as the equity and buoyancy of the tax system Introduce a new Tax Code 1997 IMF**
    Harmonize profit tax rates at 20 percent 1997* IMF
    Change to a destination basis through bilateral agreements the VAT and excise taxation for trade with CIS countries 1997 IMF
    Initially reduce certain nonpetroleum excise tax rates, then keep them under constant review 1997-99*  
    Refrain from introducing any new exemptions, apart from a limited number in the context of a new Tax Code 1997-99  
    Refrain from introducing any ad hoc tax privileges for ailing enterprises, unless in the context of a well-defined restructuring program 1997-99  
    Review revenue-sharing arrangements between central and local governments 1997-99 IMF (1997)
    Review personal tax rates, with a view to introducing progressivity 1997*  
    Review profit tax rate 1998-99 IMF
    Review taxation of petroleum products 1998-99 IMF
    After reductions in 1996 and 1997, examine scope for further lowering of payroll tax rates 1998  
  Improve tax administration Review progress in reforming the State Tax Service (STS) and establishing new medium-term objectives with technical assistance from the IMF 1997 IMF (1997)**
    Reduce excessive penalties for late payments and understating incomes 1997*  
    Expand coverage of the Large Taxpayer Unit 1997*  
    Complete computerization of tax declaration forms of the major taxes 1997 IMF (1997)**
    Reform incentive system for tax inspectors 1997  
    To reduce tax arrears, encourage STS to increase audits and use its legal powers, such as seizing assets, especially for the largest delinquents 1997-99 IMF (1997-99)
    Conduct regular taxpayer surveys to identify nonfilers and register them 1997-99  
    Extend computerization to regional tax centers 1997-99 IMF (1997)**
  Improve customs administration Develop effective valuation procedures, including use of reference price lists for imports 1997 IMF, World Bank (1997)
    Extend the TINs developed by STS to all State Customs Department (SCD) offices 1997  
    Computerize SCD, implementing the UN's ASYCUDA system 1997-98 IMF, UNCTAD, World Bank
(1997-98)**
  Implement effective duty drawback scheme, suspensive regimes and warehousing procedures for firms exporting near all of their production 1997-98 World Bank
(1997-98)**
  Develop effective procedures for collecting customs duties, VAT, excises, and the cross-border taxes at customs borders 1997-99 IMF, World Bank
(1997-99)**
    Improve controls on transit goods and on personal imports 1997-99  
    Strengthen controls at all borders with neighboring countries 1997-99  
    Provide technical and management training for tax officials 1997-99  
b. Expenditure and budget control Reorient expenditure priorities Implement the recommendations of the World Bank's Public Expenditure Review 1997-99
    Improve targeting of Social Safety Net and reorient budgetary expenditures toward basic health and education 1997-99 World Bank
(1997-99)
    Reduce the number of government workers to an efficient minimum and increase the real wages of remaining employees 1997-99  
    Increase cost recovery and improve collection rates for publicly-provided goods and services 1997-99  
    Develop a three-year rolling public investment program, and give priority to the maintenance of the existing capital stock 1997-99 World Bank**
  Improve Expenditure control and management Expand operation of the Treasury to cover all expenditure accounts of ministries, STS, customs, and special state extrabudgetary funds (including pension, employment, health, road and privatization funds) and enhance the range of Treasury activities 1997-99 IMF, World Bank
(1997-99)**
    Improve the collection of fiscal data 1997-99 IMF, World Bank
(1997-99)
    Improve procedures for budgetary preparation and implementation and monitoring, including forecasting monthly cash flows and devising plans to eliminate expenditure arrears 1997-99 IMF
    Review the expenditure assignments of local governments and transfer mechanisms from central government. Implement recommendations of IMF technical assistance mission 1997-99 IMF (1997)
2. Monetary Policy Improve NBG operations Establish a debt management coordination commission composed of officials from the Ministry of Finance and the NBG to monitor external and domestic debt including Treasury Bill developments; introduce treasury bill operations at NBG 1997 IMF, World Bank
(1997)
  Improve banking environment Reduce required reserve ratio if monetary conditions allow 1997  
    Implement new chart of accounts for commercial banks 1997 IMF, World Bank
(1997)**
    Liberalize existing limits on household deposits of certified banks 1997*  
    Eliminate the restrictions on the number of bank accounts 1997  
  Bank restructuring Complete on-site examinations of FSBs 1997  
    Revise agreements with the three former state banks in line with general conclusions of on-site examinations 1997  
    Complete liquidation process of banks which had licenses withdrawn 1997  
    Sell government shares in UGB Jan.
1997
 
    Change Agrobank management and accelerate restructuring of the bank 1997  
    Carry out regular on-site examinations of all certified banks 1997-99 IMF, World Bank
(1997-99)**
    Increase bank's minimum capital requirement to Lari 4 million 2000  
3. Trade and Exchange Regime Liberalize further the exchange and trade systems Adopt the obligations of Article VIII sections 2, 3, and 4 Dec. 1996* IMF
    Introduce new Customs Code 1997 IMF, World Bank
(1997)
  Eliminate the only remaining export prohibition except where justified for reasons of environmental protection, health or arms control 1997  
    Introduce a 5 percent rate for customs duties on imports of selected raw materials and intermediate goods 1997*  
4. External Debt Normalize relations with creditors Negotiate rescheduling in line with program assumptions 1997  
5. Social Safety Net Improve targeting and the effectiveness of social safety net Undertake a review of the social safety net 1997 IMF/World Bank
(1997)
    Shift responsibility for sickness benefits from the SSF to the employers for the first 5 working days up to 30 days a year 1997  
    Introduce a law on pension funds 1997 World Bank
(1997)
    Eliminate ineffective programs of the EF, and fully integrate remaining programs, especially unemployment benefits into the budget 1997  
    Conduct quarterly national household surveys 1997-99 World Bank
(1997)
    Increase minimum benefits in line with government wages 1997-99  
  Improve revenues Transfer the responsibility for collecting payroll taxes that finance special state extrabudgetary funds to STS 1997  
6. Health Sector Continue reform of health care system Introduce a health insurance law 1997 World Bank
(1997-99)
    Increase budgetary allocation and improve efficiency of public expenditures on health, and assure access for the poor 1997-99 World Bank
(1997-99)
    Complete privatization of pharmacies and clinics 1998 World Bank
(1997-98)
7. Education Sector Reduce Government involvement in accordance with lowered available resources Complete teacher's certification program and reform compensation structure of education personnel 1997  
    Reduce number of positions in education by 10,000 yearly 1997-99  
    Promote creation of private schools and introduce tuition fees for higher grades 1997-99 World Bank
(1997-99)
8. Energy Sector Restore financial balance to the energy sector Convert to joint stock companies all electricity generation, transmission and distribution companies 1997  
    Start privatization of energy generation companies 1997  
    Introduce a new Energy Law 1997  
    Adjust energy tariffs to cost recovery level 1997 World Bank
(1997)
    Improve collections Ongoing  
9. Agriculture Sector Develop private sector agriculture Complete distribution of agricultural land earmark for privatization in 1992 (about 60 percent of arable land) 1997 World Bank, EU-TACIS (1997)
    Improve financial services to farmers and develop a modern land registration and land cadastre system 1997-99 World Bank, EBRD, EU-TACIS (1997-99)
10. Transport Sector Restructure sector to serve market needs Continue privatization of transport enterprises, implement cost recovery mechanisms, and rehabilitate infrastructure 1997-99 World Bank
(1997-99)
11. Government Restructuring Align structure of government with the needs of the emerging market economy Review the financial relationship between the different government levels 1997 IMF
(1997)
    Consolidate the SSF, EF, Health Fund, Privatization Fund, and Road Fund with the central government budget 1997-98  
12. Environment Reinvigorate protection of Georgia's environment Complete National Environmental Action Plan 1997  
13. Statistics Improve quality and timeliness of economic statistics Develop a National Producer Price Index, compile trade data in value and volume forms, ensure that Department of Statistics data on the capital account is consistent with data of the Ministry of Finance on debt, implement GFS classification, update business register 1997 IMF, OECD, World Bank, EU-TACIS**
14. Legal framework   Introduce a new law on private ownership of land in urban and industrial areas, as well as new laws on securities, accounting for nonbank enterprises, social insurance, private pensions, and on health insurance 1997 World Bank

 *Measure has already been introduced.
**Extensive technical assistance has been provided in the past.

Table 2. Georgia: Selected Economic and Financial Indicators, 1994-99


  1994 1995 1996 1997 1998 1999
       

Program


  (Annual percentage change, unless otherwise indicated)
Output, incomes, and prices
   Real GDP -11.4 2.4 10.5 10.0 10.0 8.0
   Real GDP per capita -11.2 2.6 11.5 9.9 9.8 7.8
   Consumer Price Index (year-end) 6,473.9 57.4 13.9 12.0 8.0 6.0
 
External sector (in U.S. dollars)
   Exports (f.o.b.) at current prices 381.0 347.0 400.0 442.0 497.0 551.0
   Imports (f.o.b.) at current prices 746.0 686.0 742.0 817.0 906.0 911.0
 
Money and credit
   Net domestic assets 2,723 107 72 63 37 9
   Net domestic credit 3,255 86 60 49 32 8
      Of which: Government 2,290 300 198 61 37 3
      Of which: Non-Government sector 3,537 45 -15 26 21 22
   Money and quasi-money (M3) 2,230 135 42 35 30 25
       
       
  (In percent of GDP, unless otherwise indicated)
Public finances
   General government
       Revenue (excluding grants) 4.2 5.1 8.1 10.7 12.5 14.1
         Tax revenue 3.6 4.7 7.3 9.8 11.5 13.0
         Nontax revenue 0.6 0.5 0.9 0.9 1.0 1.1
      Expenditure (commitment basis) 24.3 12.3 14.1 14.2 15.0 15.8
          Current expenditure 23.2 10.5 12.9 13.1 13.6 13.9
              Of which: wages and salaries 0.8 1.6 1.8 2.2 2.3 2.4
         Capital expenditure and net lending 1.0 1.8 1.0 1.1 1.4 1.9
         Overall deficit
            (-, commitment basis and excluding grants)
-16.5 -5.3 -5.8 -3.5 -2.5 -1.7
         Primary balance
            (-, commitment basis and excluding grants)
-14.0 -3.8 -4.7 -2.4 -1.3 -0.4
         Overall deficit (cash basis and including grants) -7.4 -4.5 -4.4 -3.5 -1.9 -1.3
         Financing of Overall deficit (cash basis and
            including grants)
7.4 4.5 4.4 3.5 1.9 1.3
               of which: Domestic bank financing 1.4 1.6 2.7 2.0 1.7 0.2
               of which: External financing 6.0 2.9 1.7 1.5 -0.8 -1.0
               of which: Financing gap 0.0 0.0 0.0 0.0 1.0 2.1
 
Savings and investments
   Gross domestic savings -15.6 -0.6 1.6 2.9 5.4 7.9
      General government -15.5 -3.5 -4.8 -2.4 -1.1 0.2
      Non-government sector -0.1 2.9 6.4 5.3 6.5 7.7
   Investment 1.6 4.0 5.1 7.4 9.5 10.7
      General government 1.0 1.8 1.0 1.1 1.4 1.9
      Non-government sector 0.6 2.2 4.1 6.3 8.1 8.8
   External current account balance1 -17.3 -4.6 -3.5 -4.5 -4.1 -2.8
 
External and public debt and debt service
   Public sector external debt, end of year 80.4 42.6 30.0 27.6 27.3 27.0
      Of which: external arrears 32.9 17.6 3.8 -- -- --
   Public sector external debt service
      (after rescheduling)
12.0 4.6 1.4 0.8 2.3 2.4
      Of which: interest due 2.6 1.5 0.9 1.0 0.8 0.8
   Public sector external debt service/exports of GS
      (percent)
31.0 28.0 12.0 7.0 21.0 22.0
   Public sector domestic debt, end of year -- -- --
    Of which: domestic arrears -- -- --
   Gross official reserves
      (in millions of U.S. dollars) 41.0 157.0 157.0 170.0 200.0 216.0
      (in months of imports of goods and services) 0.7 2.7 2.5 2.5 2.7 2.9
 
Memorandum items
   Exchange rate (local currency/U.S. dollar,
      period average)
1.10 1.28 1.25 ... ... ...
   Nominal GDP (In millions of U.S. dollars) 1,245.9 2,885.5 4,578.4 5,424.6 6,275.5 6,972.7

1Including official transfers, and excluding net factor income.

Table 3. Georgia: Income and Social Indicators


    Latest Single Year
   Program Period
Item Unit of Measure 1970-75 1980-85 1990-95    1996 1997 1998 1999

Population in thousands 4,908 5,287 5,411    5,360 5,367 5,376 5,387
Population growth rate
   (annual average)
in percent 0.85 0.85 -0.20    -0.94 0.13 0.17 0.20
Total fertility rate in percent 69.1 72.6 55.1    ...
Index of real wages index ... ... 94.6    159.7 124.3 163.7 143.5
Consumer price index
    (period-average)
percent change ... ... 162.7    38.0 12.0 8.0 6.2
Food price index (period-average) percent change ... ... 139.9    132.5 9.0 6.5 5.5
Share of public expenditure
   Health percent of GDP ... ...
   Education percent of GDP ... ...
   Social security and welfare percent of GDP ... ...
Net primary school enrollment rate percent of
age group
99 92.2 79.6    ...
Immunization rate
   Measles percent under
12 mos.
... 36.4 26.5    ...
   DPT percent under
12 mos.
... 39.8 36.7    ...
Life expectancy at birth (years)
Total years 72 71.6 72.6    ...
   Male years 68 67.5 68.7    ...
   Female years 75 75.2 76.1    ...
Infant mortality rate per 1,000 live births 32.7 24 14.4    ...
Under 5 mortality rate per 1,000 live births 39.3 30.1 17    ...
   Male per 1,000 live births 44 32.2 19    ...
   Female per 1,000 live births 34.2 27.9 14.7    ...
Adult (15-59) mortality rate per 1,000 pop. 1.7 2.1 1.7    ...
Maternal mortality ratio per 100,000 live births ... 22.7 35.4    ...

Table 4. Georgia: External financing requirements and sources
(In millions of U.S. dollars)


  Prel. Prog. Prel. Est. Projections
  1995 1996 1996 1997 1998 1999

External financing requirements 678 973 800      591 493 432
   Current account (excluding official transfers) 408 343 350      362 378 311
   Amortization 274 89 98      55 84 82
   Change in arrears -119 528 352      160 -- --
   IMF repurchases and repayments -- -- --      -- 1 23
   Change in reserves (+, increase) 115 13 0      13 30 16
     
Disbursements: existing commitments 368 284 336      214 20 5
   Grants1 189 234 140      156 -- --
   Loans 105 50 114      58 20 5
      Bilateral creditors 15 20 25      18 0 0
      Multilateral creditors 90 30 89      40 20 5
         of which: EBRD 7 17 8      23 9 0
         of which: World Bank 83 13 81      17 11 5
            of which: Adjustment lending 75 1 63      0 0 0
            of which: Project 9 12 18      17 11 5
      Private creditors -- -- --      -- -- --
   IMF 75 -- 81      -- -- --
     
Other capital, net2 84 29 27      64 103 91
     
Disbursements: expected new commitments ... 160 0      250 306 192
     Grants ... -- 0      62 74 57
     Loans ... 77 0      108 151 134
          Bilateral creditors ... 5 0      38 60 62
          Multilateral creditors ... 72 0      70 91 73
               of which: EBRD   3 0      6 20 25
               of which: World Bank ... 69 0      63 71 48
                  of which: Adjustment lending ... 60 0      40 20 --
                  of which: Project   9 0      23 51 48
          Private creditors ... -- --      -- -- --
     IMF ... 83 --      81 81 --
     
Total identified financing 453 452 363      529 429 287
     Financing gap 225 500 436      62 64 145
     Debt and arrears rescheduling 225 500 390      62 -- --
     Arrears write-off -- -- 46      -- -- --

Source: Fund staff estimates
1Includes exceptional macroeconomic assistance from the EU.
2Includes changes in commercial banks' net foreign assets, short term capital inflows and foreign direct investment.


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