Press Release: IMF Executive Board Completes Fifth Review under the Stand-by Arrangement for Georgia and Modifies Performance Criteria
March 19, 2010Press Release No. 10/101
March 19, 2010
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Georgia's economic performance under an 18-month Stand-By Arrangement (SBA) for an amount equivalent to SDR 477.1 million (about US$ 729.2 million) approved on September 15, 2008 (see Press Release No. 08/208). On August 6, 2009, the Executive Board approved an augmentation of access under the SBA to an amount equivalent to SDR 747.1 million (about US$1,141.8 million) and an extension of the SBA until June 14, 2011 (see Press Release No. 09/277). The completion of the fifth review allows for the immediate purchase of an amount equivalent to SDR 97.3 million (about US$148.7 million).
The Executive Board also modified the end-March and end-June 2010 performance criteria with regard to the ceiling on net domestic assets, floor on net international reserves, and the budget deficit to reflect some quarterly reallocation of spending, revenue, and external financing. The Executive Board changed performance criterion on the contracting or guaranteeing of nonconcessional debt to an indicative target given Georgia’s moderate debt vulnerabilities and strong management capacity.
After the Executive Board's discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, said:
“Signs of an economic recovery are becoming more evident, sustained by an improved external environment and supportive macroeconomic policies. To gain momentum, recent positive trends will require a pickup of FDI and credit growth.
“The authorities’ economic program has helped to restore confidence and limit the contraction of economic activity in 2009 by allowing for a marked widening of the fiscal deficit. With the economy now recovering, the 2010 economic program focuses on fiscal retrenchment, which is aimed at preserving debt sustainability and macroeconomic stability and facilitating the exit from IMF balance of payments support. The containment of public expenditures should lead to a reduction of the fiscal deficit to 7.4 percent of GDP in 2010, down from 9.2 percent in 2009, while protecting social spending.
“High dollarization severely constrains monetary policy and, despite considerable monetary easing, credit conditions remain tight. In the short term, the authorities are pursuing various initiatives to restart credit growth. However, once the economic recovery firms up and lending resumes, some monetary tightening will become necessary to promote dedollarization and preserve disinflation gains.
“With solid capitalization and provisioning and a recent decline in nonperforming loans (NPLs), banks’ balance sheet constraints on lending have eased recently. However, banks remain exposed to substantial credit risk from high NPLs and currency-induced credit risk. Recent measures to strengthen preparedness and supervision and the gradual move toward risk-based supervision will enhance the efficiency of financial intermediation.”