Georgia’s economic recovery is gaining momentum, inflation is projected to decline starting in early 2018, and the external position has strengthened, says the First Review of the Extended Arrangement under the Extended Fund Facility for Georgia completed by the International Monetary Fund (IMF) Executive Board.
While highlighting Georgia’s achievements in its economic performance and banking sector developments, the IMF review warns that despite the positive outcomes, the authorities need to remain vigilant and sustain reform efforts to address structural obstacles to growth.
The 2018 budget appropriately targets further fiscal consolidation. The 2018 budget envisages a further decline in the deficit while allowing for an increase in capital spending. To achieve this, efforts to strengthen revenue administration should continue, especially to prevent the buildup of VAT claims. The authorities should also bolster efforts to further contain current spending, for instance, by containing the wage bill, improving the targeting of social programs, and reducing subsidies and equity injections to state-owned enterprises,” said the IMF.
The inflation-targeting framework, combined with the floating exchange rate regime, has served Georgia well. Foreign exchange intervention should remain limited to smoothing excessive exchange rate volatility and building reserves. The NBG’s [National Bank of Georgia] steps to strengthen liquidity management, de-dollarise the economy, and improve communication will help strengthen the monetary framework,” said the IMF.
The IMF welcomed Georgian authorities’ steps to increase the resilience of the financial sector. "The authorities’ efforts to identify legal amendments to adopt an effective emergency liquidity assistance framework are also commendable,” said the IMF.
The review accented that Georgia also "critically needs” to advance on education reform.
The Executive Board of the IMF completed the First Review of Georgia’s performance under the three-year extended arrangement under the Extended Fund Facility (EFF) on a lapse of time basis on December 6.
The completion of the review enables the release of about $42.4 million, bringing total disbursements under the arrangement to about $84.8 million. The extended arrangement for about $297.5 million was approved by the Executive Board on April 12, 2017.