International Monetary Fund. Middle East and Central Asia Dept.
KEY ISSUES Context. Georgia’s previous Fund-supported program, which expired in April 2014, met most of its objectives, in particular by reducing Georgia’s external and fiscal imbalances. The program also helped preserve the central bank’s independence after the 2012–13 political transition and strengthened its inflation-targeting framework. However, over time it proved increasingly difficult to reconcile the program’s fiscal objectives with the new government’s policies of increasing social spending, especially after the economy slowed and revenues fell short in 2013. Also, despite the progress achieved under the program, macroeconomic challenges remain. The current account deficit and external debt are high, leaving the economy susceptible to shocks. Strong and inclusive growth is needed to reduce widespread poverty and high unemployment. More recently, the external outlook has worsened, opening up a balance of payments need in 2014. Program and its objectives. To address these challenges, the authorities request a new three-year SDR 100 million (67 percent of quota) Stand-by Arrangement to address an external financing need in 2014 related in part to the realignment of fiscal policies to more social spending. The program will facilitate Georgia’s external adjustment, reduce key macroeconomic vulnerabilities, rebuild policy buffers, and support growth. Program policies. In 2014, the program balances supporting domestic demand with the need to safeguard external stability. To reduce the output gap, fiscal policy provides a measured stimulus, while monetary policy remains accommodative. However, the authorities will tighten policies and allow the exchange rate to adjust if balance of payments pressures were to intensify. From 2015, the fiscal deficit will be reduced to keep public debt low and to create space for countercyclical policies. This consolidation will rely on raising revenue by broadening the tax base and containing current expenditure, while protecting pro-poor spending and public investment. Monetary policy will aim at price stability through improved inflation targeting. The program will seek to rebuild international reserves while encouraging greater exchange rate flexibility. Strengthening of the financial sector will continue, helped by the recommendations of the recent FSAP mission. The program also aims to contain risks from quasi-fiscal activities and support improvements in tax administration, and will complement the authorities’ reforms to strengthen the business environment, improve education and training, create jobs and reduce poverty and inequality.
Ms. Claudia H Dziobek, Mr. Alberto F Jimenez de Lucio, and Mr. James A Chan
This note addresses the following main issues: • Statistical definitions of government (Government Finance Statistics Manual 2001) • Institutional structure of government and public sector • What is a precise definition of government and why it is relevant • Potential pitfalls of lacking a precise definition of government • Definitions of government in IMF-supported programs • Applications for fiscal rules and other fiscal policy design
The Georgian antimoney laundering (AML) and combating the financing of terrorism (CFT) regime has significantly improved since 2007. However, technical deficiencies, poor implementation, and limited resources undermine the effectiveness of the financial intelligence unit (FIU) and AML/CFT supervision. The country has a comprehensive legal framework in place criminalizing both ML and FT as autonomous offenses and no shortcomings have been identified. It has also established a framework to implement the relevant United Nations Security Council Resolutions (UNSCRs).
This paper provides Executive Directors with an update of safeguards assessment activities from July 1, 2008 through June 30, 2009. In common with previous updates, it covers the various types of safeguards activities undertaken during the year, highlighting the increased activity associated with the “twin crises” of food and fuel price shocks and the global financial crisis during 2008/09. It also briefly discusses developments in the latter part of that year, including the separate safeguards procedures introduced for members accessing the Flexible Credit Line (FCL).
This Selected Issues paper analyses the impact that rising energy import prices might have on growth and inflation in Ukraine. The paper examines how rising gas prices might elevate macrofiscal risks in Ukraine’s state enterprise sector. It assesses Ukraine’s equilibrium exchange rate mainly based on the macroeconomic balance approach, and provides an account of the monetary framework debate. The paper also summarizes the current framework’s achievements and shortcomings, and looks at traditional criteria for determining whether a peg or float fits Ukraine’s economic characteristics.
Quasi-fiscal deficits of public utility companies are common in all member countries of the Commonwealth of Independent States (CIS). They constitute a significant impediment to efficient resource allocation and endanger macroeconomic stability. This paper presents a simple framework for measuring and monitoring such deficits and highlights their macroeconomic relevance. It reviews the progress under IMF conditionality aimed at correcting these imbalances during 1993-2003. The paper suggests that the extensive conditionality under the IMF-supported programs has yielded only limited progress in reducing the energy sector's financial imbalances. In conclusion, different policy options are discussed in light of the lessons learned.
Many countries among the Baltics, Russia and other CIS states are increasingly borrowing on international capital markets, a development that generally reflects their success in achieving financial stabilization. In view of the low level of domestic saving and large capital requirements, recourse to foreign borrowing may of course generate significant benefits for these economies in transition. However, the rapid increase in external debt suggests that consideration also needs to be given to the risks from too high a dependence on foreign saving, including inter alia risk of the postponement of needed structural reforms.
The paper discusses the social protection implications of the weakening financial and administrative capacity of countries undergoing economic transition. The formal sector is shrinking, and unemployment and underemployment are rising rapidly. This is affecting both the revenue base of social protection programs and the ability of these countries to target social benefits. These developments make it imperative for these countries to restructure social benefits, rely more on self-targeting mechanisms to deliver benefits, as well as take immediate steps to improve payroll tax compliance. This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the author(s) and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.