IMF voices recommendations to stabilise Georgian economy

The International Monetary Fund (IMF) has penned a list of recommendations to help stabilise the country’s economy.

Improving the country’s social policy, increasing taxes and strengthening dialogue and cooperation between the Government and the National Bank of Georgia (NBG) were some of the recommendations the Analytic Mission of IMF introduced to the Georgian Government yesterday.

The IMF Mission was led by Mark Griffiths and visited Tbilisi from February 23 to March 4. The group aimed to assess how the situation in neighbouring countries had influenced Georgia’s economy.

Despite IMF’s suggestion to increase taxes, Georgia’s Economy Minister Giorgi Kvirikashvili today announced taxes would be reduced.

"We have been working very hard to reduce taxes. We think we need more liberalisation in this direction,” Kvirikashvili said.

Exactly how the Government planned to reduce taxes will be announced in the coming days, the Minister noted.

While evaluating the reasons for the devaluation of Georgia’s national currency, the Lari, the IMF Mission leader said a combination of several strong shock factors had influenced Georgia’s economy, including the Russia-Ukraine crisis, deep recession in Russia and devaluation of their trade partner countries’ currencies.

"Because of these shocks Georgia’s exports has dropped by 30 percent compared with the previous year and monetary transfers carried out by those working abroad have reduced by 25 percent,” said Griffiths.

"The Gross Domestic Product (GDP) is approximately 9.5 percent for 2014 due to the reduction of income from monetary transfers and tourism. All this caused a slowdown in Georgia’s economic activity,” he noted.

"It is true the Lari has depreciated less than other currencies of the region but the fact is that it creates problems for individuals who have loans in the US dollar and earn an income in the Lari,” he added.

Georgia’s economic growth may reach two percent this year but this projection was not without risk, Griffiths believed.

When asked why the Lari had gained value in recent days, Griffiths said this question was difficult to answer as it was one of the known features of a floating exchange rate.

"Floating rates implies rises and falls in value in order to balance risks and external factors. It was a great shock, but that’s how the market reacts to the exchange rate,” said Griffiths, adding most European countries had experienced the same.

"The activities of Georgia’s main trade partners has also reduced and devaluation of their currencies influences Georgia’s competitiveness,” said Griffiths.

A journalist asked him to assess the recent accusations that the NBG acted inappropriately in response to the currency crisis; however the IMF Mission leader refused to be drawn into speculation and said he had never heard anything about corruption in NBG. He said it was necessary to respect the bank’s independence.

"The Government and the bank should unite and resolve the existing problems,” Griffiths answered.

As for NBG spending its reserve to bolster the country’s currency, Griffiths noted when monetary reserves were sold, interest rates increased and economic recession still took place.

He concluded no intervention was needed when there was a floating exchange rate in a country.