Washington, DC: On April 9, the Executive Board of the International Monetary Fund (IMF) completed on a lapse of time basis [1] the Eighth Review of Georgia’s economic reform program 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 SDR 78 million (about $111 million), bringing total disbursements to SDR 484 million (about $687 million).
Repeated restrictions on movement and economic activity took a toll on economic growth with output contracting by 6.2 percent in 2020. 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 percent for the year.
The 2021 budget appropriately provides additional targeted support to vulnerable households and businesses to help cope with the pandemic. If more fiscal support is needed due to a new wave of the pandemic, reprioritizing spending should be the first line of defense. Increased public debt and sizable contingent liabilities make strict adherence to the fiscal rule especially important to preserve credibility. Proactive monitoring of fiscal risks remains essential, and advancing state owned enterprise reform would help control and mitigate those risks.
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 NBG remains appropriately focused on achieving its inflation target which is a cornerstone of Georgia’s macroeconomic policy framework. 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. Overall, the inflation targeting framework, combined with the floating exchange rate regime, continues to serve Georgia well and foreign exchange intervention should remain aimed at preventing disorderly market conditions.
The financial sector remained profitable in 2020 and the banking system managed to maintain sufficient capital buffers to withstand the COVID-19 shock, reflecting the effectiveness of the supervisory regime before the crisis. Looking ahead, supervisors should aim to calibrate policies that balance the need to support the recovery and to proactively deal with the increase in non-performing loans. The new bank resolution framework will further strengthen financial resilience.
In addition to prudent macroeconomic policies, advancing the structural reform agenda will be essential to sustain a durable and inclusive recovery. The near-term priorities are operationalizing the insolvency framework to deal with the aftermath of the COVID-19 shock, and education reform.
Georgia: Selected Economic and Financial Indicators, 2018-2022
2018 | 2019 | 2020 | 2020 | 2021 | 2022 | |
Actual | Country Report 20/322 1/ | Prelimi-nary | Projections | |||
National accounts and prices | (annual percentage change; unless otherwise indicated) | |||||
Real GDP | 4.8 | 5.0 | -5.1 | -6.2 | 3.5 | 5.8 |
Nominal GDP (in billion of laris) | 44.6 | 49.3 | 49.9 | 49.4 | 53.3 | 59.3 |
Nominal GDP (in billion of U.S. dollars) | 17.6 | 17.5 | 16.2 | 15.9 | 16.2 | 18.1 |
GDP per capita (in thousand of U.S. dollars) | 4.7 | 4.7 | 4.4 | 4.3 | 4.4 | 4.9 |
GDP deflator, period average | 4.3 | 4.9 | 5.2 | 6.9 | 5.2 | 3.8 |
CPI, Period average | 2.6 | 4.9 | 5.2 | 5.2 | 3.8 | 2.7 |
CPI, End-of-period | 1.5 | 7.0 | 3.5 | 2.4 | 5.0 | 2.4 |
Investment and saving | (in percent of GDP) | |||||
Gross national saving | 21.4 | 24.2 | 16.6 | 14.6 | 13.2 | 16.5 |
Investment | 28.1 | 29.3 | 26.4 | 26.9 | 24.1 | 24.4 |
Public | 6.4 | 8.0 | 8.1 | 8.6 | 7.9 | 6.9 |
Private | 21.7 | 21.3 | 18.3 | 18.4 | 16.2 | 17.5 |
Consolidated government operations | (in percent of GDP) | |||||
Revenue and grants | 26.4 | 27.1 | 24.9 | 25.1 | 25.2 | 25.7 |
o.w. Tax revenue | 23.4 | 23.7 | 21.8 | 22.2 | 22.6 | 23.1 |
Expenditures | 29.2 | 29.6 | 34.2 | 34.9 | 33.3 | 30.1 |
Current expenditures | 21.3 | 21.4 | 25.9 | 26.2 | 25.2 | 22.9 |
Capital spending and budget lending | 7.9 | 8.2 | 8.3 | 8.7 | 8.1 | 7.2 |
Net Lending/Borrowing (GFSM 2001) | -0.8 | -1.8 | -8.8 | -9.2 | -7.4 | -3.7 |
Augmented Net lending / borrowing (Program definition)2/ | -2.3 | -2.1 | -9.0 | -9.3 | -7.6 | -4.0 |
General government debt3/ | 38.9 | 40.4 | 56.3 | 60.0 | 60.8 | 58.2 |
o.w. Foreign-currency denominated | 31.6 | 32.0 | 44.3 | 47.5 | 49.6 | 45.5 |
Money and credit | (in percent; unless otherwise indicated) | |||||
Credit to the private sector | 19.9 | 20.7 | 17.1 | 22.4 | 6.4 | 8.3 |
In constant exchange rate | 17.7 | 16.1 | 10.0 | 9.0 | 5.5 | 8.6 |
Broad money | 13.9 | 17.6 | 14.3 | 24.6 | 16.9 | 16.6 |
In constant exchange rate (estimate) | 15.1 | 14.3 | 8.8 | 14.4 | 15.8 | 17.6 |
Broad money (excl. fx deposits) | 15.9 | 18.8 | 14.3 | 18.8 | 17.7 | 18.4 |
Deposit dollarization (percent of total) | 63.1 | 64.0 | 64.1 | 67.5 | 67.0 | 66.2 |
Credit dollarization (percent of total) | 57.1 | 55.4 | 56.9 | 55.7 | 55.0 | 54.9 |
Credit to the private sector (percent of GDP) | 57.4 | 62.8 | 72.6 | 76.6 | 75.5 | 73.5 |
External sector | (in percent of GDP; unless otherwise indicated) | |||||
Current account balance | -6.8 | -5.1 | -9.8 | -12.3 | -10.9 | -7.9 |
Trade balance | -23.4 | -21.3 | -17.1 | -19.8 | -18.9 | -18.0 |
Terms of trade (percent change) | -5.1 | 2.9 | 4.8 | 5.2 | -9.2 | 1.7 |
Gross international reserves (in billions of US$) | 3.3 | 3.5 | 3.6 | 3.9 | 3.6 | 4.0 |
In percent of IMF Composite measure (floating) | 95.3 | 98.2 | 105.4 | 111.0 | 97.8 | 98.9 |
Gross external debt | 101.0 | 105.6 | 127.0 | 124.8 | 133.9 | 126.2 |
Gross external debt, excl. intercompany loans | 82.9 | 86.9 | 103.8 | 104.1 | 110.3 | 103.9 |
Laris per U.S. dollar (period average) | 2.53 | 2.82 | … | 3.11 | … | … |
Laris per euro (period average) | 2.99 | 3.15 | … | 3.55 | … | … |
REER (period average; CPI based, 2010=100) | 106.2 | 100.5 | … | 97.5 | … | … |
Sources: Georgian authorities; and Fund staff estimates. 1/ Please refer to this link for details https://www.imf.org/en/Publications/CR/Issues/2020/12/18/Georgia-Seventh-Review-Under-the-Extended-Fund-Facility-Arrangement-and-Request-for-49973 2/ Augmented Net lending / borrowing (Program definition) = Net lending / borrowing – Budget lending. 3/ Excludes domestic legacy debt of 1.2 percent of GDP. | ||||||
[1]The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.