IMF Executive Board Concludes 2011 Article IV Consultation with Georgia

Public Information Notice (PIN) No. 11/40
March 28, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On March 23, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Georgia.1


The economic recovery is proceeding at a solid pace, with real GDP growth of above 6 percent in 2010. Growth was broad based across all economic sectors, driven by a rebound of credit to the private sector and strong export demand. Inflation rose to 13.7 percent in February on the back of increasing commodity prices, but core inflation remains low. Although foreign direct investment inflows remain subdued, the private sector external position has improved since mid-year, reflecting an increase in other private financial inflows and a narrowing of the current account deficit to 10 percent of GDP in 2010. The resulting abatement of exchange rate pressures has allowed the central bank to reduce intervention and strengthen its net international reserve position.

Riding on the rebound of the private sector, the government began withdrawing the fiscal stimulus, with a resulting narrowing of the fiscal deficit to 6.6 percent of GDP in 2010 from 9.2 percent in 2009, driven essentially by the containment of current spending. The central bank has tightened its monetary stance steadily since June 2010, initially in response to exchange rate pressures and more recently worries about rising inflation.

Financial stability concerns from the balance sheet impact of the crisis have abated, reflecting the decline of non-performing loans and adequate bank capitalization and provisioning. Prudential requirements have been restored back toward pre-crisis levels, adding to the general tightening of policies.

An Ex Post Assessment Update (EPA) was conducted to review Georgia’s economic performance during its long-term involvement with the Fund. The report covered the country’s performance during 2004-10 under two Fund-supported programs: the 2004-07 Poverty Reduction and Growth Facility (PRGF) and the 2008-11 Stand-By Arrangement (SBA).

Executive Board Assessment

Executive Directors commended the authorities for their strong policy response to the crisis, which succeeded in stabilizing the economy and restoring confidence. The economy is recovering at a solid pace, the fiscal position has improved substantially, and core inflation remains subdued. Directors noted that fiscal consolidation, exchange rate flexibility, and effective monetary policy would help tackle the challenges ahead and lay the foundations for sustained growth.

Directors agreed that the short-term priority is to limit the impact of the recent commodity-price shock on the most vulnerable and to contain inflationary risks. They welcomed the recent increase in social spending and the authorities’ readiness to tighten monetary policy further should inflation pressures persist or credit grow too fast.

For the medium term, Directors observed that the main challenge is to transition from recovery to durable growth by addressing remaining adjustment needs. They supported the authorities’ more proactive approach to economic growth, with emphasis on structural reforms in agriculture and targeted public investment. At the same time, it will be important to further reduce the fiscal deficit to a sustainable level. To create sufficient fiscal space so as to enhance social safety nets and avoid an unsustainable compression of other current spending, Directors underscored the need for rationalizing the capital budget and preserving adequate flexibility on the revenue side.

Directors noted that further adjustment is needed to bring the fiscal and external positions to sustainable levels and encouraged the authorities to decisively implement their consolidation strategy. While the cyclical recovery in partner countries and productivity gains from structural reforms should help narrow the deficit, they stressed that exchange rate flexibility should remain a central instrument of adjustment. Directors also encouraged the authorities to increase the issuance of domestic government paper to contain potential external debt rollover risks.

Directors commended the authorities for the successful implementation of reforms to introduce market-based monetary policy instruments and to develop financial markets, which have contributed to increasing the traction of monetary policy. They looked forward to further progress in the transition to inflation targeting, by enhancing the inflation forecasting and modeling capacity, and improving underlying statistics. Directors welcomed the strengthening of financial sector supervision, and recommended continued vigilance in the face of emerging challenges.

Directors broadly agreed with the conclusions of the EPA update of Georgia’s economic performance under the two Fund-supported programs. Structural reforms, implemented under the PRGF, have led to a private-sector driven economy. There was, however, some concern that the program in 2004–07 could have been more ambitious in addressing increasing vulnerabilities. The current SBA has been effective in restoring macroeconomic stability in the aftermath of the crisis, but the external and internal adjustment is likely to be incomplete. Directors agreed that addressing remaining vulnerabilities should be at the core of any future program engagement with the Fund.

Georgia: Selected Macroeconomic Indicators, 2008–11
  2008 2009 2010 2011
  Act. Act. Proj. Proj.
  (Annual percentage change, unless otherwise indicated)

National accounts


Nominal GDP (in million lari)

19,075 17,986 20,566 23,332

Real GDP growth

2.3 -3.8 6.3 5.5

Population (in million) 1/

4.4 4.4 4.4 4.4

GDP deflator, period average

9.7 -2.0 7.6 7.5

Consumer price index, period average

10.0 1.7 7.1 10.2

Consumer price index, end-of-period

5.5 3.0 11.2 8.0

GDP per capita (in US$)

2,937 2,455 2,629 2,920

Unemployment rate (in percent)

16.5 16.9 ... ...
  (In percent of GDP)

Investment and saving


Investment 2/

21.5 15.3 15.0 17.2


4.3 6.9 7.2 6.0


17.2 8.5 7.8 11.2

Gross national saving

-1.1 4.1 5.1 4.7


2.2 -0.8 2.3 3.7


-3.4 4.9 2.8 1.1

Saving-investment balance

-22.6 -11.2 -9.9 -12.5

Consolidated government operations


Total government debt

25.0 37.3 39.5 41.1

Of which: foreign-currency denominated

20.9 31.7 33.9 35.9

Revenue 3/

30.7 29.3 28.5 27.3

Current expenditures

28.5 30.1 26.3 23.7

Operating balance

2.2 -0.8 2.3 3.7

Capital spending and net lending

8.6 8.4 8.9 7.6

Overall balance

-6.3 -9.2 -6.6 -3.9

Total financing

6.3 9.2 6.6 3.9


-2.3 3.3 0.0 0.4


5.0 3.9 5.6 2.6

Privatization receipts

3.7 2.0 1.1 0.9
  (Annual percentage change, unless otherwise indicated)

Monetary sector


Reserve money

-4.5 21.8 4.5 7.1

Broad money (including fx deposits) 4/

7.0 8.1 28.5 16.0

Bank credit to the private sector

28.2 -13.5 20.5 13.2

Deposit interest rate (annual weighted average on flows)

9.5 9.4 7.9

Lending interest rate (annual weighted average on flows)

22.7 20.8 17.7

External sector


Exports of goods and services (percent of GDP)

28.7 29.8 35.2 36.9

Annual percentage change

15.9 -13.0 26.6 16.6

Imports of goods and services (percent of GDP)

58.3 48.9 52.9 55.6

Annual percentage change

26.8 -29.8 15.9 16.8

Net imports of oil (in US$)

762 555 642 780

Current account balance (in millions of US$)

-2,912 -1,210 -1,147 -1,597

In percent of GDP

-22.6 -11.2 -9.9 -12.5

Gross international reserves (in millions of US$)

1,480 2,111 2,263 2,780

In months of next year's imports of goods and services

3.4 4.2 3.8 4.5

Foreign direct investment (percent of GDP)

12.2 6.1 5.0 5.5

Average exchange rate (lari per US$)

1.48 1.67 1.78

Sources: Georgian authorities; and IMF staff estimates.

1/ Excludes Abkhazia residents.

2/ Investment is measured on a net basis (acquisitions minus disposals of nonfinancial assets).

3/ Includes grants. 

4/ The proceeds of the Georgian Railway eurobond issuance from July 2010, which were deposited in accounts with Georgian

commercial banks that placed them abroad are not included in broad money.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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