Press Release: IMF Executive Board Completes Second Review of Georgia's PRGF Arrangement and Approves US$20.2 Million Disbursement
July 20, 2005
The Executive Board of the International Monetary Fund (IMF) completed today the second review of Georgia's performance under the three-year program supported by the Poverty Reduction and Growth Facility (PRGF). In completing the review, the Board approved the authorities' request for a waiver for the nonobservance of an end-December 2004 structural performance criterion on amendments to the Budget Systems Law, and the conversion of the indicative target on reserve money into a performance criterion.
The Executive Board approved the PRGF arrangement on June 4, 2004 (see Press Release No. 04/107) for an amount equivalent to SDR 98 million (about US$141.6 million). Completion of the second review will release an SDR 14 million tranche, bringing total disbursements under the arrangement to SDR 42 million (about US$60.7 million).
Following the Executive Board discussion of Georgia's economic performance, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"Georgia's economy has continued to perform well under the Fund-supported program, buttressed by the impressive turnaround in the fiscal position that was underpinned by a decisive attack on corruption. The new administration has demonstrated strong ownership of the program and its resolve to invigorate reforms. The tax reform that took effect in January 2005 on the back of impressive revenue gains in 2004 has contributed to improving tax administration and the business climate, while receipts from an accelerated privatization drive have enabled the government to increase spending for priority programs without endangering fiscal sustainability.
"The government has made progress in structural reforms, including in revenue administration, the promotion of transparency in government operations, and a sweeping simplification of licenses and permits to facilitate private sector activities. It is important now to also make progress in areas where measures were delayed, including parliamentary approval of amendments to the Budget Systems Law and liberalization of the trade regime.
"The thrust of the authorities' economic program for the remainder of 2005 is to maintain macroeconomic stability and keep inflation at single-digit rates. The government will also continue to pursue reforms aimed at enhancing growth prospects and alleviating poverty, and it plans to institutionalize and further strengthen its anti-corruption strategy. Public spending priorities for 2005 seek to remove long-standing obstacles to growth, especially in infrastructure and the energy sector.
"Going forward, higher government spending against the backdrop of sizable capital inflows will require skillful coordination between the fiscal and monetary authorities. To ensure low inflation, the government has provided welcome assurances that discretionary spending will be managed carefully. If inflationary pressures intensify during the second half of the year, the central bank should stand ready to tighten the monetary stance beyond the limits envisaged in the program," Mr. Kato said.
The PRGF is the IMF's low-cost facility, which carries an annual interest rate of 0.5 percent, and is repayable over 10 years with a 5 ½-year grace period on principal payments. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper. 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 reduction of poverty. For additional information on Georgia's poverty reduction strategy visit the country-specific pages at www.imf.org. Georgia's annual progress report has been published as Country Report 05/113 and the related Joint Staff Advisory Note as Country Report 05/210).