Abstract
Georgia's medium-term economic goals are to reestablish fiscal and external sustainability and reduce poverty. The conduct of monetary policy has remained sound. Fiscal consolidation has been supported by important measures to strengthen public expenditure management and improve fiscal transparency. Measures to combat corruption, restructure the energy sector, and privatize key enterprises must be accelerated in order to underpin faster growth and poverty reduction. Georgia's efforts to restore its solvency will require continued international support, including further concessional lending and external debt rescheduling.
1. This statement provides information on developments since the staff report was issued (EBS/01/173, October 12, 2001). These developments do not change the thrust of the staff appraisal.
2. Consumer price inflation in September was lower than expected. The 12-month rate declined to 2¼ percent, well below the end-year target of 5 percent. The lari remained stable in September and the National Bank of Georgia (NBG) purchased US$4½ million in foreign exchange, in line with the program. Gross international reserves of the NBG stood at US$130 million at the end of September, equivalent to one month of imports of goods and services.
3. The staff considers that all prior actions stipulated in the Letter of Intent (Appendix V of the staff report) have been implemented:
Macroeconomic performance at end-September was satisfactory. Preliminary data indicate that all quantitative targets except the one on domestic expenditure arrears were observed at end-September, based on cumulative changes from end-March 2001 (Table 1).1 Net international reserves were over US$11 million above the floor. Tax revenues were strong in September, and the cumulative floor on general government tax revenue collection was exceeded by a small margin, despite a continuing shortfall in cigarette and petroleum revenues relative to the indicative target. The cash budget deficit, net credit to the government from the banking system, and net domestic assets of the central bank all turned out well below the September ceilings, reflecting a significant build-up of government deposits at the end of the month. This appears to be a result of an unusually marked bunching of tax payments at the end of the month. Following an accumulation of domestic expenditure arrears in September, the cumulative arrears ceiling was exceeded by a small margin of lari 2 million. Had the authorities used part of their margin of lari 19 million under the net credit to government ceiling and drawn down additional deposits, they could have avoided arrears accumulation and met the arrears target, while still observing the cash deficit ceiling. The authorities have assured the staff that the arrears accumulation in September was reversed in the early days of October. The outturns for end-September are therefore fully consistent with observance of end-December 2001 performance criteria.
On October 23, 2001 parliament passed an amendment to the 2001 budget to bring it into line with the revised program. While the budget amendment relates to the central government, it includes a table, for information, showing a revised general government budget for 2001 in line with Table 3 in the staff report.
The Minister of Revenues has informed the staff that a code of conduct has been adopted and that all staff of the ministry have acknowledged in writing their receipt of the code.
On October 23, 2001 parliament passed amendments to the central bank and commercial banking laws establishing the primacy of banking law in bank-related matters.
Georgia: Quantitative performance criteria and indicative targets, March-December, 20011/
Section. 1 of this table shows quantative targets under the April-September 2001 track record agreed in May (and adjusted in July) and performance criteria for end-December 2001, based on cumulative changes from end-March 2001. Some ceilings and floors are subject to possible adjustment, as indicated in footnotes 5, 6, and 8, based on deviations from projections of external financing, reported in Section 3 of the table. Indicative targets are shown in Section 2. Continuous performance criteria are described in paragraph 53 of the MEFP (EBS/00/258).
Year-to-date flows for tax, revenues, cash deficit, expenditure arrears, and cigarette and oil revenues.
Based upon accounting exchange rates 2 lari/US$ and 1.35 US$/SDR.
Special white funds include the Pension, Employment, and Road Funds. Privatization receipts are excluded.
Air described in the TMU, the program target on the cash deficit is adjusted for deviations from projected disbursements of external project finance minus grants for debt operations (Section 3C). The ceiling for the cash deficit of the general government for the end of a month will be adjusted upward (downward) by the full amount of the cumulative excess (shortfall) of external project financing minus grants for debt operations, subject to a cap on cumulative upward adjustment of lari 80 million.
As described in the TMU, program targets on NCG and NDA are adjusted for deviations from projected net external non-project financing of the general government (Section 3B), defined as the sum of all foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus external amortization payments by the general government (net of debt reductions grants). The ceilings for NCG and NDA will be adjusted upward (downward) by the full amount of the cumulative shortfall (excess) of net external non-project financing, subject to a cap on cumulative upward adjustment of lari 40 million.
The stock excludes the recapitalization bond issued by the government to cover NBG losses in 1998.
As described in the TMU, the program target on NIR is adjusted for deviations from projected net foreign-currency non-project financing (Section 3A), defined as the sum of foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus foreign-currency amortization by the general government and the NBG (net of debt reduction grants). The floor on NIR will be adjusted downward (upward) by the full amount of the cumulative shortfall in net foreign-currency non-project financing, subject to a cap on downward adjustment of US$32.5 million.
Georgia: Quantitative performance criteria and indicative targets, March-December, 20011/
| Stocks2/ | Cumulative change from end-March 2001 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Track record | Performance criteria | |||||||||||||||||||||
| End-Dec.’00 | End-Mar.’01 | End-May’01 | End-June’01 | End-July’01 | End-Aug.’01 | End-Sept.’01 | End-Dec.’01 | |||||||||||||||
| Actual | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Prelim | Target | |||||
| (In millions of lari) | ||||||||||||||||||||||
| 1. Quantitative targets3/ | ||||||||||||||||||||||
| Floor on general govt. tax revenue (including special funds)4/ | 851.5 | 202.7 | 147.2 | 147.2 | 151.9 | 232.7 | 232.7 | 238.6 | 319.2 | 319.2 | 321.7 | 405.7 | 405.7 | 404.6 | 492.5 | 492.5 | 493.5 | 760.3 | ||||
| Ceiling on cash deficit of the general govt (CDGG)5/ | 153.7 | 0.7 | 37.1 | 29.4 | 8.2 | 58.7 | 49.6 | 24.3 | 42.6 | 43.2 | 40.5 | 52.4 | 54.2 | 56.6 | 52.2 | 60.0 | 48.7 | 87.4 | ||||
| Ceiling on domestic expenditure arrears of the general govt. | n.a. | 31.4 | -2.0 | -2.0 | -8.8 | -10.0 | -10.0 | -15.3 | -23.3 | -23.3 | -34.0 | -28.3 | -28.3 | -37.4 | -33.3 | -33.3 | -31.4 | -43.3 | ||||
| Ceiling on net credit of the banking system to the general govt. (NCG)6/7/ | 738.1 | 719.2 | 24.7 | 24.7 | 4.7 | 37.8 | 37.8 | 14.2 | 33.0 | 31.5 | 25.4 | 38.0 | 35.4 | 35.5 | 47.1 | 41.2 | 21.9 | 19.1 | ||||
| Ceiling on net domestic assets (NDA) of the NBG6/ | 820.1 | 815.7 | 15.3 | 15.3 | 7.4 | 23.5 | 23.5 | 15.5 | 22.6 | 21.1 | 17.9 | 23.3 | 20.7 | 19.7 | 28.1 | 22.2 | -0.4 | -12.5 | ||||
| (in millions of U.S. dollars) | ||||||||||||||||||||||
| Floor on total net international reserves (NIR) of the NBC8/ | -214.4 | -228.2 | 2.6 | 2.6 | -0.3 | 2.3 | 2.3 | 4.3 | 8.8 | 9.5 | 13.9 | 9.3 | 10.6 | 18.1 | 8.5 | 11.5 | 22.9 | 32.8 | ||||
| Ceiling on contracting or guaranteeing | ||||||||||||||||||||||
| A. short-term external debt (less than one year) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| B. nonconcessional medium- and long-term external debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| (In millions of lari) | ||||||||||||||||||||||
| 2. Indicative targets | ||||||||||||||||||||||
| Reserve money | 365.9 | 359.3 | 20.5 | 20.5 | 6.9 | 28.1 | 28.1 | 24.1 | 40.1 | 40.1 | 45.6 | 41.9 | 41.9 | 55.9 | 45.2 | 45.2 | 45.4 | 53.2 | ||||
| Cigarette and petroleum revenues | 104.7 | 28.1 | 18.7 | 18.7 | 18.3 | 31.1 | 31.1 | 31.5 | 44.6 | 44.6 | 41.6 | 58.0 | 58.0 | 48.3 | 71.4 | 71.4 | 61.0 | 111.7 | ||||
| Cumulative change from end-March 2001 | ||||||||||||||||||||||
| End-May’01 | End-June’01 | End-July’01 | End-Aug.’01 | End-Sept.’01 | End-Dec.’01 | |||||||||||||||||
| 3. Adjusten | ||||||||||||||||||||||
| (in millions of U.S. dollars) | ||||||||||||||||||||||
| A. Net foreign-currency non-project financing8/ | ||||||||||||||||||||||
| Projection | -0.8 | -0.8 | -1.5 | -2.2 | -3.9 | 23.7 | ||||||||||||||||
| Outturn | -0.8 | -0.8 | -0.8 | -0.9 | -1.0 | n.a. | ||||||||||||||||
| Adjustment to NIR target | 0.0 | 0.0 | 0.8 | 1.3 | 2.5 | n.a. | ||||||||||||||||
| (in millions of lari) | ||||||||||||||||||||||
| B. Net external non-project financing of the general govt.6/ | ||||||||||||||||||||||
| Projection | -1.5 | -1.5 | -3.0 | -4.4 | -7.8 | 36.3 | ||||||||||||||||
| Outturn | -1.5 | -1.5 | -1.5 | -1.8 | -1.8 | n.a. | ||||||||||||||||
| Adjustment to NDA and NCO targets | 0.0 | 0.0 | -1.5 | -2.6 | -5.9 | n.a. | ||||||||||||||||
| C. External project financing minus grants for debt operations5/ | ||||||||||||||||||||||
| Projection | 16.5 | 24.6 | 19.5 | 27.6 | 25.6 | 40.5 | ||||||||||||||||
| Outturn. | 8.8 | 15.6 | 20.1 | 29.4 | 33.3 | n.a. | ||||||||||||||||
| Adjustment to cash deficit target | -7.7 | -9.1 | 0.7 | 1.8 | 7.7 | n.a. | ||||||||||||||||
Section. 1 of this table shows quantative targets under the April-September 2001 track record agreed in May (and adjusted in July) and performance criteria for end-December 2001, based on cumulative changes from end-March 2001. Some ceilings and floors are subject to possible adjustment, as indicated in footnotes 5, 6, and 8, based on deviations from projections of external financing, reported in Section 3 of the table. Indicative targets are shown in Section 2. Continuous performance criteria are described in paragraph 53 of the MEFP (EBS/00/258).
Year-to-date flows for tax, revenues, cash deficit, expenditure arrears, and cigarette and oil revenues.
Based upon accounting exchange rates 2 lari/US$ and 1.35 US$/SDR.
Special white funds include the Pension, Employment, and Road Funds. Privatization receipts are excluded.
Air described in the TMU, the program target on the cash deficit is adjusted for deviations from projected disbursements of external project finance minus grants for debt operations (Section 3C). The ceiling for the cash deficit of the general government for the end of a month will be adjusted upward (downward) by the full amount of the cumulative excess (shortfall) of external project financing minus grants for debt operations, subject to a cap on cumulative upward adjustment of lari 80 million.
As described in the TMU, program targets on NCG and NDA are adjusted for deviations from projected net external non-project financing of the general government (Section 3B), defined as the sum of all foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus external amortization payments by the general government (net of debt reductions grants). The ceilings for NCG and NDA will be adjusted upward (downward) by the full amount of the cumulative shortfall (excess) of net external non-project financing, subject to a cap on cumulative upward adjustment of lari 40 million.
The stock excludes the recapitalization bond issued by the government to cover NBG losses in 1998.
As described in the TMU, the program target on NIR is adjusted for deviations from projected net foreign-currency non-project financing (Section 3A), defined as the sum of foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus foreign-currency amortization by the general government and the NBG (net of debt reduction grants). The floor on NIR will be adjusted downward (upward) by the full amount of the cumulative shortfall in net foreign-currency non-project financing, subject to a cap on downward adjustment of US$32.5 million.
Georgia: Quantitative performance criteria and indicative targets, March-December, 20011/
| Stocks2/ | Cumulative change from end-March 2001 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Track record | Performance criteria | |||||||||||||||||||||
| End-Dec.’00 | End-Mar.’01 | End-May’01 | End-June’01 | End-July’01 | End-Aug.’01 | End-Sept.’01 | End-Dec.’01 | |||||||||||||||
| Actual | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Actual | Target | Adj.T. | Prelim | Target | |||||
| (In millions of lari) | ||||||||||||||||||||||
| 1. Quantitative targets3/ | ||||||||||||||||||||||
| Floor on general govt. tax revenue (including special funds)4/ | 851.5 | 202.7 | 147.2 | 147.2 | 151.9 | 232.7 | 232.7 | 238.6 | 319.2 | 319.2 | 321.7 | 405.7 | 405.7 | 404.6 | 492.5 | 492.5 | 493.5 | 760.3 | ||||
| Ceiling on cash deficit of the general govt (CDGG)5/ | 153.7 | 0.7 | 37.1 | 29.4 | 8.2 | 58.7 | 49.6 | 24.3 | 42.6 | 43.2 | 40.5 | 52.4 | 54.2 | 56.6 | 52.2 | 60.0 | 48.7 | 87.4 | ||||
| Ceiling on domestic expenditure arrears of the general govt. | n.a. | 31.4 | -2.0 | -2.0 | -8.8 | -10.0 | -10.0 | -15.3 | -23.3 | -23.3 | -34.0 | -28.3 | -28.3 | -37.4 | -33.3 | -33.3 | -31.4 | -43.3 | ||||
| Ceiling on net credit of the banking system to the general govt. (NCG)6/7/ | 738.1 | 719.2 | 24.7 | 24.7 | 4.7 | 37.8 | 37.8 | 14.2 | 33.0 | 31.5 | 25.4 | 38.0 | 35.4 | 35.5 | 47.1 | 41.2 | 21.9 | 19.1 | ||||
| Ceiling on net domestic assets (NDA) of the NBG6/ | 820.1 | 815.7 | 15.3 | 15.3 | 7.4 | 23.5 | 23.5 | 15.5 | 22.6 | 21.1 | 17.9 | 23.3 | 20.7 | 19.7 | 28.1 | 22.2 | -0.4 | -12.5 | ||||
| (in millions of U.S. dollars) | ||||||||||||||||||||||
| Floor on total net international reserves (NIR) of the NBC8/ | -214.4 | -228.2 | 2.6 | 2.6 | -0.3 | 2.3 | 2.3 | 4.3 | 8.8 | 9.5 | 13.9 | 9.3 | 10.6 | 18.1 | 8.5 | 11.5 | 22.9 | 32.8 | ||||
| Ceiling on contracting or guaranteeing | ||||||||||||||||||||||
| A. short-term external debt (less than one year) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| B. nonconcessional medium- and long-term external debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| (In millions of lari) | ||||||||||||||||||||||
| 2. Indicative targets | ||||||||||||||||||||||
| Reserve money | 365.9 | 359.3 | 20.5 | 20.5 | 6.9 | 28.1 | 28.1 | 24.1 | 40.1 | 40.1 | 45.6 | 41.9 | 41.9 | 55.9 | 45.2 | 45.2 | 45.4 | 53.2 | ||||
| Cigarette and petroleum revenues | 104.7 | 28.1 | 18.7 | 18.7 | 18.3 | 31.1 | 31.1 | 31.5 | 44.6 | 44.6 | 41.6 | 58.0 | 58.0 | 48.3 | 71.4 | 71.4 | 61.0 | 111.7 | ||||
| Cumulative change from end-March 2001 | ||||||||||||||||||||||
| End-May’01 | End-June’01 | End-July’01 | End-Aug.’01 | End-Sept.’01 | End-Dec.’01 | |||||||||||||||||
| 3. Adjusten | ||||||||||||||||||||||
| (in millions of U.S. dollars) | ||||||||||||||||||||||
| A. Net foreign-currency non-project financing8/ | ||||||||||||||||||||||
| Projection | -0.8 | -0.8 | -1.5 | -2.2 | -3.9 | 23.7 | ||||||||||||||||
| Outturn | -0.8 | -0.8 | -0.8 | -0.9 | -1.0 | n.a. | ||||||||||||||||
| Adjustment to NIR target | 0.0 | 0.0 | 0.8 | 1.3 | 2.5 | n.a. | ||||||||||||||||
| (in millions of lari) | ||||||||||||||||||||||
| B. Net external non-project financing of the general govt.6/ | ||||||||||||||||||||||
| Projection | -1.5 | -1.5 | -3.0 | -4.4 | -7.8 | 36.3 | ||||||||||||||||
| Outturn | -1.5 | -1.5 | -1.5 | -1.8 | -1.8 | n.a. | ||||||||||||||||
| Adjustment to NDA and NCO targets | 0.0 | 0.0 | -1.5 | -2.6 | -5.9 | n.a. | ||||||||||||||||
| C. External project financing minus grants for debt operations5/ | ||||||||||||||||||||||
| Projection | 16.5 | 24.6 | 19.5 | 27.6 | 25.6 | 40.5 | ||||||||||||||||
| Outturn. | 8.8 | 15.6 | 20.1 | 29.4 | 33.3 | n.a. | ||||||||||||||||
| Adjustment to cash deficit target | -7.7 | -9.1 | 0.7 | 1.8 | 7.7 | n.a. | ||||||||||||||||
Section. 1 of this table shows quantative targets under the April-September 2001 track record agreed in May (and adjusted in July) and performance criteria for end-December 2001, based on cumulative changes from end-March 2001. Some ceilings and floors are subject to possible adjustment, as indicated in footnotes 5, 6, and 8, based on deviations from projections of external financing, reported in Section 3 of the table. Indicative targets are shown in Section 2. Continuous performance criteria are described in paragraph 53 of the MEFP (EBS/00/258).
Year-to-date flows for tax, revenues, cash deficit, expenditure arrears, and cigarette and oil revenues.
Based upon accounting exchange rates 2 lari/US$ and 1.35 US$/SDR.
Special white funds include the Pension, Employment, and Road Funds. Privatization receipts are excluded.
Air described in the TMU, the program target on the cash deficit is adjusted for deviations from projected disbursements of external project finance minus grants for debt operations (Section 3C). The ceiling for the cash deficit of the general government for the end of a month will be adjusted upward (downward) by the full amount of the cumulative excess (shortfall) of external project financing minus grants for debt operations, subject to a cap on cumulative upward adjustment of lari 80 million.
As described in the TMU, program targets on NCG and NDA are adjusted for deviations from projected net external non-project financing of the general government (Section 3B), defined as the sum of all foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus external amortization payments by the general government (net of debt reductions grants). The ceilings for NCG and NDA will be adjusted upward (downward) by the full amount of the cumulative shortfall (excess) of net external non-project financing, subject to a cap on cumulative upward adjustment of lari 40 million.
The stock excludes the recapitalization bond issued by the government to cover NBG losses in 1998.
As described in the TMU, the program target on NIR is adjusted for deviations from projected net foreign-currency non-project financing (Section 3A), defined as the sum of foreign-currency privatization receipts and World Bank SAC&ESAC disbursements, minus foreign-currency amortization by the general government and the NBG (net of debt reduction grants). The floor on NIR will be adjusted downward (upward) by the full amount of the cumulative shortfall in net foreign-currency non-project financing, subject to a cap on downward adjustment of US$32.5 million.
4. The stage one safeguards assessment of the National Bank of Georgia (NBG) was completed in early October. The assessment identified vulnerabilities in the internal control system of the NBG, and to a lesser degree in some other areas of control and governance within the NBG. The stage one report recommended that an on-site assessment be undertaken to confirm or modify the preliminary findings, and to recommend, ad referendum, measures to remedy them. The on-site assessment mission is scheduled for November 5-13, 2001 and a report is expected to be completed by mid-December.