Georgia and the IMF
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The International Monetary Fund (IMF) has approved the third annual loan under the Enhanced Structural Adjustment Facility (ESAF),1 in an amount equivalent to SDR 55.5 million (about US$74 million), to support Georgia’s economic program in 1998. The loan is available in two equal installments, the first of which is available immediately.
During the last three years, Georgia has made major efforts to stabilize its economy and implement structural reform. The payoff from these efforts has been significant, with the economy growing at annual rates of more than 10 percent for two consecutive years and real wages starting to recover. Inflation has been brought down to single-digit levels from hyperinflation in 1993/94, and the international reserve position has improved significantly. Key ingredients in this success have been an increase in tax collection and a reduction in the overall fiscal deficit, complemented by prudent monetary and credit policies, which have contributed to lower inflationary expectations.
Medium-Term Strategy and the 1998 Program
The government’s medium-term strategy aims at consolidating macroeconomic stabilization gains, achieving greater external viability, accelerating structural reforms, and keeping the economy on a sustainable growth path while strengthening the social safety net. The main macroeconomic objectives for 1998-2000 are an annual growth rate of 8-10 percent, an inflation rate of 4 percent by 2000, and an increase in central bank gross reserves to the equivalent of 2.8 months of imports by 2000.
The 1998 program targets GDP growth of 10 percent, a fall in the inflation rate to 6 percent, and an increase in gross official reserves equivalent to about 2.3 months of imports. To these ends, the overall fiscal deficit will narrow to 2.5 percent of GDP in 1998 from about 3.8 percent of GDP in 1997 as a result of increasing revenue, while allowing expenditure to continue to rise moderately. Expenditure arrears are targeted to be eliminated by the end of December 1998. These efforts will be supported by prudent monetary and credit policies.
Structural policies aim at fostering private sector development and sustaining economic growth, in particular through urban and industrial land privatization; faster privatization ofmedium and large-scale enterprises; removing trade restrictions; restructuring the electricity sector; and strengthening of banks’ prudential regulations. The program also envisages judicial reform to ensure effective implementation of the many laws that the Georgian parliament enacted during the last two years.
Addressing Social Needs
Poverty alleviation will continue to be a key consideration in the reform program. The authorities intend to protect the poor and improve the targeting of benefits. They have given priority to eliminating arrears on wages, pensions, and social transfers. In addition, government spending on health and education is targeted to rise to 21 percent of total budgetary appropriations in 1998.
The Challenge Ahead
The authorities have had a positive record of achievement under the first and second annual ESAF programs. They have formulated a strong program for 1998 that will keep Georgia on a path of sustained economic growth and low inflation. The program deserves international support.
Georgia joined the IMF on May 5, 1992; its quota2 is SDR 111.0 million (about US$148 million); its outstanding use of IMF credit currently totals SDR 189 million (about US$252 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.
2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT