IMF Staff Completes Mission for the 2018 Article IV Consultation and Second Review of Georgia's Extended Fund Facility
An International Monetary Fund (IMF) team led by Mercedes Vera Martin visited Tbilisi from April 2-16 to conduct the 2018 Article IV consultation and the second review of Georgia's economic program supported by the IMF's Extended Fund Facility (EFF) arrangement.
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 second review under the EFF. The agreement is subject to approval by the IMF's Executive Board. The Executive Board is tentatively scheduled to consider the 2018 Article IV consultation and the second EFF review in June. Completion of the review will make SDR30 million (about $43.6 million) available to Georgia under the EFF, bringing total disbursements to SDR 90 million (about $130 million).
"Program performance has been satisfactory. Quantitative performance criteria for end-December were met, and the indicative target on current spending was only missed by a small margin. The reform program is advancing well. Most structural benchmarks have been implemented.
"Growth in 2017 was stronger than expected, due to robust economic activity in main trading partners and buoyant domestic consumption. Annual inflation reached 6.7 percent at end-2017, and fell to 2.8 percent in March 2018 as the impact of excise increases dissipated. Rapid growth in exports, tourism, and remittances narrowed the current account deficit to 8.7 percent of GDP in 2017. Credit to the private sector supported economic activity. The fiscal deficit was lower than expected under the program due to strong revenues, driven by the economic recovery. Higher revenues and contained current spending provided space to increase public investment and repay higher VAT credits.
"Growth in 2018 is expected to remain strong, with risks to the outlook balanced. The current account deficit is expected to widen slightly due to higher oil prices and public investment. Over the medium term, sustained implementation of Georgia's economic reform program is expected to support higher and more inclusive growth by fostering private investment, productivity, and competitiveness.
"Fiscal prudence is expected to continue. The fiscal deficit is expected to decline from 2.9 percent in 2017 to 2.8 percent in 2018, while allowing for additional VAT credits repayments and capital spending. The deficit is projected to gradually decline over the medium term. To achieve this while scaling-up public investment will require identifying spending efficiency gains and firmly containing other public expenses.
"The authorities also plan to strengthen their fiscal framework and public investment management, enhance revenue administration and the monitoring of SOEs, increase public sector efficiency, and limit fiscal risks while improving their disclosure.
"The monetary policy stance is adequate and appropriately focuses on price stability. Inflation at end-2018 is projected in line with the target. Georgia's flexible exchange rate remains critical to protect the economy against external shocks.
"Financial sector reforms will continue focusing on strengthening financial resilience and promoting consumer protection. Improving emergency liquidity assistance and the banking resolution framework would further foster financial stability. To protect vulnerable households from high indebtedness, the National Bank of Georgia's is designing guidelines on responsible lending. Targeted prudential measures and enhanced financial literacy and consumer protection may help reduce dollarization in Georgia.
"Advancing structural reforms is crucial for more robust and inclusive growth. Continuing decisive implementation of the authorities' reform agenda will be essential to promote private-sector led growth, create jobs, and reduce poverty. Consistent with the authorities' Four-Point plan, priorities are scaling up public investment, improving the business environment and governance, and reforming education.
"The IMF team would like to thank the authorities and private sector representatives for candid and constructive discussions, and for their cooperation and hospitality."