IMF: Georgia remains vulnerable to external developments

IMF: Georgia remains vulnerable to external developments

access_time2019-05-14 14:27:24

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

  • The IMF team reached staff-level agreement with the authorities on completing the fourth review under the Extended Fund Facility program. The IMF Executive Board is expected to consider the review in June.
  • Growth is projected to remain stable in 2019. Over the medium term, structural reforms and infrastructure investment will be critical to support higher and more inclusive growth.
  • Georgia remains vulnerable to external developments. This requires continued exchange rate flexibility and reserves buildup, prudent monetary and fiscal policies, and sound financial sector policies.

An International Monetary Fund (IMF) team led by Ms. Mercedes Vera Martin visited Tbilisi from April 30 to May 13 to discuss the fourth review under the Extended Fund Facility (EFF). The program supports the government's reform agenda aimed at reducing economic and financial vulnerabilities and generating higher and more inclusive growth.

At the conclusion of the mission, Ms. Vera Martin issued the following statement:

Following productive discussions, the Georgian authorities and the IMF reached a staff-level agreement on the fourth review for Georgia's reform program supported by the IMF's Extended Fund Facility. The agreement is subject to approval by the IMF's Executive Board, which is expected to consider it in June. Completion of the review will make SDR30 million (about $41.6 million) available to Georgia, bringing total disbursements under the EFF to SDR 150 million (about $207.9 million).

The reform program remains on track, with most commitments for the completion of the fourth review met.

Growth in 2018 reached 4.7 percent. Inflation remained close to the central bank's target. Robust growth in exports, tourism receipts, and remittances and subdued import growth narrowed the current account deficit to 7.7 percent of GDP from 8.8 percent of GDP in 2017. Fiscal performance in 2018 was in line with deficit targets, partly due to a sharp increase in spending in December 2018. Better than expected revenues supported higher capital spending and budget lending operations, while current spending remained contained.

Despite a weaker global outlook, preliminary data indicates robust growth in 2019 Q1. Growth is projected at 4.6 percent in 2019, with inflation somewhat above the 3-percent target mostly reflecting increases in tobacco excises. Structural reforms and infrastructure investment are expected to gradually increase growth to 5¼ percent over the medium term. The current account deficit is expected to narrow gradually supported by an improving trade balance.


Although the outlook is positive, Georgia remains vulnerable to spillovers from external developments, including escalating global trade tensions and financial market volatility. A greater-than-expected slowdown in credit could impact growth in the short term.

The growth momentum provides an opportunity for the authorities to persevere with the reform agenda, while continuing to build reserves against adverse impacts of external shocks.

The fiscal deficit will remain relatively stable in 2019 and over the medium term, although spending composition is expected to change to reflect new priorities toward implementing the education reform. We welcome the authorities' commitment to implement their reform plans within the existing budget envelope. The authorities are advancing toward further enhancing revenue administration, strengthening public investment management, and improving the monitoring of state-owned enterprises to limit fiscal risks.

Monetary policy remains focused on price stability, and the stance of monetary policy is appropriate. We welcome the authorities' continued commitment to exchange rate flexibility and buildup of external buffers.

Financial sector reforms should continue focusing on strengthening financial resilience. As expected, recently adopted regulations to introduce responsible lending principles have tightened lending standards and slowed credit growth. This is likely to make credit growth more sustainable and needs to be balanced with sustained access to credit for creditworthy borrowers. We welcome progress towards strengthening emergency liquidity assistance and bank resolution frameworks.

Advancing structural reforms and a steadfast implementation of the authorities' reform agenda will promote private-sector led growth, create jobs, and promote more inclusive growth. Notably, a comprehensive education reform will be key to improve skills and reduce unemployment. The upcoming insolvency framework and the capital market reform would help mobilize investment.

The IMF team would like to thank the authorities, international stakeholders, and private sector representatives for open and constructive discussions and for their hospitality.



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