IMF completes eighth & final review of Georgia’s economic reform programme

The executive board of the International Monetary Fund (IMF) has just completed the eighth review of Georgia’s economic reform programme supported by a four-year extended arrangement under the Extended Fund Facility (EFF ).

This is the last review under the arrangement and its completion will release about $111 million, bringing total disbursements to about $687 million.

The review reads that repeated restrictions on movement and economic activity took a toll on economic growth with output contracting by 6.2% in 2020, but the authorities’ policy response helped limit the human toll of the pandemic and 'rightly focused' on protecting the vulnerable. 

After successfully navigating the second wave of Covid-19 and commencing vaccinations, Georgia is at a potential turning point in overcoming the fallout of the pandemic. The next steps are to decisively bring Covid-19 under control, secure the recovery, and maintain macroeconomic policy discipline in a challenging environment. Under the baseline, a strong recovery is expected to commence in the second quarter of 2021 and output is expected to expand by 3.5% for the year", says the IMF.

The review discusses the devaluation of the Georgian national currency, the lari, and notes that monetary policy may need to be increased to target inflation.

Due to consecutive shocks related to concerns over travel restrictions in the second half of 2019, the outbreak of the pandemic in early 2020, and recent spillovers of trading partner currency volatility, the lari has come under repeated bouts of pressure... The most recent policy rate increase responds to elevated inflation expectations following a somewhat prolonged period of inflation exceeding its target. Further increases in the policy rate may be needed if external pressures persist", says the IMF.

The IMF suggests that in addition to prudent macroeconomic policies, advancing the structural reform agenda will be essential to sustain a durable and inclusive recovery. The review reads that the near-term priorities are operationalising the insolvency framework to deal with the aftermath of the Covid-19 shock, and education reform.