Press Release No. 06/68

Press Release: IMF Executive Board Completes Third Review of Georgia's PRGF Arrangement and Approves US$20.2 Million Disbursement

March 31, 2006

The Executive Board of the International Monetary Fund (IMF) completed today the third 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 waivers for the nonobservance of the end-September 2005 quantitative performance criterion on the clearance of domestic expenditures arrears and the end-September 2005 structural performance criterion on the submission to the parliament of a new customs code.

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$141.2 million). Completion of the third review will enable Georgia to draw SDR 14 million (about US$20.2 million), bringing total disbursements under the arrangement to SDR 56 million (about US$80.7 million).

Following the Executive Board discussion of Georgia's economic performance, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"Georgia's economy continues to perform well, bolstered by a further improvement in the fiscal position and monetary policy geared at controlling inflation. The new administration continues to demonstrate strong ownership of the program supported under the Poverty Reduction and Growth Facility and has pushed ahead with structural reforms. Against the backdrop of the tax reform that took effect in January 2005, the Georgian authorities have further strengthened their revenue position, which enabled higher spending on priority items without endangering fiscal sustainability. More focused spending has also contributed to a slowly improving poverty situation.

"The government has advanced its structural reform agenda, including by upgrading revenue administration, promoting transparency in government operations, and facilitating private sector activities. Further progress is needed, however, to safeguard fiscal sustainability and transparency, enhance growth prospects, and encourage additional private sector investment, including from abroad.

"The thrust of the authorities' economic program for 2006 is to continue economic growth and poverty reduction while maintaining macroeconomic stability and keeping inflation at single-digit rates. Public spending priorities for 2006 will focus on shielding the poor from adverse economic conditions and on improving the environment for private investment, including by upgrading infrastructure and providing more reliable energy supply.

"Going forward, higher government spending against the backdrop of sizable capital inflows will require enhanced coordination between the fiscal and monetary authorities. The authorities should continue to aim at strengthening the capacity of the National Bank of Georgia to effectively manage liquidity fluctuations," Mr. Kato said.