News Brief: IMF Completes Second Review of Georgia's PRGF Program and Approves In Principle US$30 Million Disbursement
July 12, 2002
The Executive Board of the International Monetary Fund (IMF) today completed its second review of Georgia's economic performance under the program supported under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The Board also approved Georgia's request of a switch from quarterly to semi-annual disbursements and a rephasing of disbursements. The completion of the review will enable Georgia to draw an amount equivalent to SDR 22.5 million (about US$30 million) from the IMF.
The Board's decision will become effective after the World Bank's review of the progress on the development of Georgia's full Poverty Reduction Strategy Paper (PRSP).
Georgia's arrangement under the PRGF was approved on January 12, 2001, in an amount equivalent to SDR 108 million (about US$144 million—see Press Release No. 01/4). So far, Georgia has drawn SDR 27 million (about US$36 million).
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.
Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:
"The Georgian authorities have moved forward in implementing their three-year economic program; economic growth has been robust, despite a difficult external environment; and inflation remained moderate. The authorities' program for 2002 provides a coherent framework for supporting economic stability and growth. The budget envisages further deficit reduction, while a rise in tax revenue will help safeguard an increase in social spending (on a cash basis) in a context of overall expenditure restraint. The authorities' continued commitment to a prudent monetary policy and a floating exchange rate regime is welcome.
"Going forward, a determined effort to press through critical reforms will be essential to achieve the program's medium-term objectives of ensuring debt sustainability, of creating a favorable business and investment climate, and of making significant inroads into poverty. Recent reforms in the fiscal area have strengthened expenditure management and revenue administration, while the tax package adopted in June 2002 removes several exemptions and reverses the steady erosion of the tax base seen in recent years. Further strengthening the tax and customs administration and enhancing the efficiency of the tax system will, however, be crucial to achieve a level of revenue collection that is consistent with debt sustainability, while creating room for priority spending aimed at reducing poverty.
"On structural reforms, progress will be particularly important in the energy and financial sectors. Implementation of the government's recently adopted energy debt strategy will be a significant step forward to move the sector toward financial viability. The authorities are committed to continuing to work closely with the World Bank and other agencies to raise cash collection rates in the energy sector and to improve the sector's efficiency. In the financial sector, the central bank is encouraged to make effective use of its new supervisory capacity to deal expeditiously with identified problem banks, and to move ahead with measures that will improve governance and transparency in the banking system.
"The authorities intend to finalize their poverty reduction strategy in the near future, in consultation with civil society. The strategy's focus on setting favorable conditions for private sector growth, supported by fiscal and social sector reforms, is welcome. The Executive Board considers that progress in developing the strategy provides a sound basis for continued concessional assistance from the Fund. Going forward, it will be important to ensure adequate prioritization and costing of the measures contained in the strategy. The authorities are encouraged to intensify their efforts to improve governance in a wide range of areas that are critical to creating a sound business and investment environment.
"In view of the satisfactory macroeconomic performance and recent progress on structural reforms in some critical areas, the Executive Board completed the second review under the arrangement and granted waivers for the nonobservance of a number of performance criteria. Strong performance under the program will continue to be needed to address the difficult economic challenges facing Georgia, and to mobilize support that will help Georgia achieve medium-term debt sustainability," Mr. Sugisaki said.