IMF revises 2021 growth outlook, expects Georgian economy to rebound to 4.3%

The International Monetary Fund (IMF) expects gross domestic product growth to rebound to 4.3 per cent in 2021 'as the effects of the pandemic fade, but considerable downside risks remain', says the IMF staff team led by Mercedes Vera Martin who conducted virtual discussions from October 5 to November 9, 2020, on the seventh review under the Extended Fund Facility (EFF) arrangement.

• International Monetary Fund forecasts 5% economic growth in Georgia in 2021

The revision in the 2021 growth outlook, from five per cent at the October 2020 World Economic Outlook, is attributed to uncertainty associated with the regional conflict and the increased number of Covid-19 cases in Georgia. Inflation is expected to converge to the 3-percent target by end- 2021. Medium-term growth is projected to remain unchanged at 5¼ percent supported by infrastructure spending and sustained structural reforms to increase productivity and enhance private sector-led growth", reads the statement issued by Vera-Martin after the conclusion of the mission. 

Completion of the review will make about $112.1 million available to Georgia, bringing total disbursements under the EFF arrangement to about $576.4 million.

Here are the key projections of the IMF staff team for Georgia:

• Covid-19 shock is expected to cause a contraction of five per cent in GDP in 2020, 'one percentage point greater than projected at the time of the sixth review, on account of a more negative impact of the lockdown and a more protracted shock'
• End-2020 inflation is projected at 3.5 per cent 'as high food prices during the lockdown have been fully offset by the decline in inflation after the reopening'
• The current account deficit is expected to widen to 9.7 per cent of GDP in 2020, from 5.4 per cent in 2019
• The fiscal deficit is expected to widen on the back of lower tax revenues and fiscal support measures provided to support those impacted by the shock
• The shock to tourism is expected to be protracted with tourism receipts assumed to recover to 2019 levels only by 2024

The statement reads that the National Bank of Georgia (NBG) 'has taken decisive actions' to mitigate the impact of the pandemic on the real economy and the financial sector. Banks in Georgia have been 'generally resilient' amid the pandemic, helped by their sound initial capital and liquidity positions and the strong response by the NBG in dealing with the shock. 

Despite lower revenues, the government expanded spending to minimise the economic and social impact of the crisis. Among the measures, wage subsidies, cash transfers to households, including those in the informal sector, expanded social transfers, and temporary tax reliefs for businesses have helped sustain activity. Smoother execution of the budget helped accelerate public investment and VAT refunds. As a result, the fiscal deficit is projected to reach 8.7 percent of GDP in 2020", says Vera-Martin in her statement. 

In conclusion, the statement reads that advancing the structural reform agenda 'remains essential' to support the recovery, limit the economic scarring from the pandemic, and achieve stronger, resilient, and more inclusive growth, needed to improve the standards of living for all Georgians.