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Source: International Monetary Fund

May 1, 2020

  • The IMF Executive Board approved a disbursement of US$200 million for budget support to help Georgia meet urgent balance of payments and fiscal needs stemming from the COVID-19 pandemic.
  • The pandemic is expected to have a significant impact on Georgia’s economy, interrupting a positive economic trajectory of past years.
  • To preserve macroeconomic stability, the authorities have taken several steps to increase health spending, strengthen social protection, and support the businesses during the shock.

Washington, DC – The IMF Executive Board of the International Monetary Fund (IMF) completed today the Sixth Review of Georgia’s economic reform program supported by a three-year extended arrangement under the Extended Fund Facility (EFF). The IMF Executive Board also approved an augmentation of access of 130 percent of quota, bringing total access under the EFF to SDR484 million (230 percent of quota).

The completion of the review will release SDR147 million (about $200 million) for budget support, to help Georgia meet urgent balance of payments and fiscal needs stemming from the COVID-19 pandemic, including increased spending on health services and social protection. Total disbursements so far under the arrangement amount to SDR327

In completing the review, the IMF Executive Board also approved the authorities’ request for a waiver of nonobservance for the performance criteria on the ceiling on the augmented general government deficit.

The pandemic is expected to have a significant impact on Georgia’s economy, interrupting the positive economic trajectory of past years. The weakened macroeconomic outlook and fiscal situation have created urgent external and fiscal financing needs. The IMF financial support will make a substantial contribution toward fulfilling the needed increases in health spending and social safety nets.

Following the Executive Board discussion, Mr. Tao Zhang, IMF Deputy Managing Director and Chair, made the following statement:

“The COVID-19 pandemic has hit the Georgian economy hard. A drop in external demand and tourism has widened the current account deficit, led to a depreciation of the exchange rate, and a substantial decline in economic activity. The authorities have acted rapidly by introducing sweeping containment measures and targeted support to households and to most affected sectors.

“The fiscal deficit has increased, and external financing has been mobilized to allow for additional spending. While increased public spending is necessary, vigilance is needed to safeguard debt sustainability, particularly against fiscal risks arising from state-owned enterprises.

“The National Bank of Georgia has appropriately maintained a moderately tight monetary policy stance, while allowing exchange rate to remain flexible. Monetary policy decisions should be based on close monitoring of inflationary expectations.

“Advancing structural reforms would help sustain medium-term growth potential and achieve a faster recovery after the pandemic. Adopting the indexation rule for public pension would contribute to sustain the income of pensioners. Completing the banking resolution framework and implementing the insolvency framework would help support the recovery.

“The augmentation of access under the Extended Fund Facility arrangement should support the authorities’ policies to address the COVID-19 shock and help meet the urgent balance-of-payments need.”


Table 1. Georgia: Selected Economic and Financial Indicators, 2018–21

2018

2019

2019

2020

2020

2021

Actual

CR 19/3721/
New GDP

Actual

CR 19/3721/
New GDP

Proj.

Proj.

National accounts and prices 2/

(annual percentage change; unless otherwise indicated)

Real GDP

4.8

4.6

5.1

4.3

-4.0

4.0

Output gap

-1.5

-1.0

-0.5

-1.0

-1.5

-1.7

Nominal GDP (in billion of laris)

44.6

49.0

50.0

53.4

50.3

54.5

Nominal GDP (in billion of US$)

17.6

17.5

17.7

18.7

15.1

17.7

GDP per capita (in thsnd. of US$)

4.7

4.7

4.8

5.1

4.1

4.8

GDP deflator, period average

4.3

4.9

6.4

4.7

5.1

4.0

CPI, period average

2.6

4.9

4.9

4.5

4.7

3.6

CPI, end-of-period

1.5

7.2

7.0

3.0

3.5

3.0

Core CPI, end-of-period

0.5

3.8

Investment and saving

(in percent of GDP)

Gross national saving

26.5

26.2

28.7

26.2

20.3

25.5

Investment

33.3

31.2

33.8

31.1

31.6

33.0

Public

6.4

7.2

7.9

6.6

6.4

6.4

Private

26.9

24.0

25.9

24.4

25.2

26.6

Consolidated government operations

(in percent of GDP)

Revenue and grants

26.4

26.4

26.7

25.4

24.1

24.7

o.w. Tax revenue

23.4

23.5

23.7

23.0

21.4

22.2

Expenditures

29.2

28.8

29.1

28.3

32.9

29.9

Current expenditures

21.3

21.3

21.0

21.4

26.2

23.2

Capital spending and budget lending

7.9

7.6

8.1

6.9

6.7

6.8

Net lending/borrowing (GFSM 2001)

-0.8

-1.8

-1.8

-2.2

-8.2

-4.4

Augmented net lending / borrowing (program definition) 3/

-2.3

-2.1

-2.0

-2.5

-8.5

-4.8

Public debt 4/

41.3

44.1

42.7

44.5

62.8

59.6

o.w. Foreign-currency denominated

32.5

34.3

32.9

33.7

50.6

45.6

Public debt net of government deposits 4/

38.8

40.9

39.8

40.9

54.0

51.2

Money and credit

Credit to the private sector (annual % change)

19.3

17.3

19.9

8.5

5.9

3.6

In constant exchange rate

17.0

11.5

15.2

7.5

-2.3

8.2

Broad money (annual % change)

14.0

14.7

16.1

9.2

3.6

11.5

Broad money (incl. FX deposits, annual % change)

13.3

14.9

16.0

8.1

3.1

8.3

In constant exchange rate

11.9

9.2

11.8

8.1

-4.6

16.7

Deposit dollarization (in percent of total)

62.1

62.9

61.9

62.7

62.4

58.4

Credit dollarization (in percent of total)

55.8

53.7

54.4

51.3

51.6

49.2

Credit-to-GDP ratio

58.8

62.8

62.9

62.5

66.2

63.3

External sector

Current account balance (in billions of US$)

-1.2

-0.9

-0.9

-0.9

-1.7

-1.3

Current account balance

-6.8

-5.0

-5.1

-4.9

-11.3

-7.5

Trade balance

-23.4

-20.9

-21.0

-20.5

-20.4

-19.8

Terms of trade (percent change)

-5.1

0.2

2.6

-1.8

1.8

3.9

Gross international reserves (in billions of US$)

3.3

3.3

3.5

3.4

3.5

3.6

In percent of IMF Composite measure (floating)

95.4

96.4

99.0

95.9

103.9

98.5

Gross external debt

100.3

109.3

103.4

108.1

136.3

124.1

Gross external debt, excl. intercompany loans

82.2

87.7

85.0

86.7

111.4

102.2

Lari per US$ (period average)

2.53

2.82

Lari per euro (period average)

2.99

3.15

REER (period average; CPI based, 2010=100)

104.1

98.1

Sources: Georgian authorities; and Fund staff estimates.

1/ Please refer to this link for details https://www.imf.org/en/Publications/CR/Issues/2019/12/18/Republic-of-Georgia-Fifth-Review-Under-the-Extended-Arrangement-Requests-for-Waivers-of-48888 . The ratio incorporates updated GDP from national accounts.

2/ National accounts numbers include the impact of GDP rebasing, which increased GDP levels while leaving growth rates unchanged.

3/ Augmented Net lending / borrowing (Program definition) = Net lending / borrowing – Budget lending.

4/ Public debt includes central government and NBG.

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