Georgia: First Review Under the Stand-By Arrangement Informational Annex
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International Monetary Fund
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Publication Date:
06 Jan 2009
eISBN:
9781451814682
Language:
English
Keywords:
ISCR; CR; market uneasiness; Stand-By Arrangement; Georgia's Stand-By Arrangement; policy; authority; bank Republic; reform effort; credit line; Georgian authorities; senior debt; Infrastructure; External sector statistics; Financial sector; Global; commitment to the accounting reform strategy
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The staff report for the First Review Under the Stand-By Arrangement with the officials of Georgia highlights economic developments and policies. Sustaining economic growth and maintaining confidence in the currency and the financial system within the constraints of available external financing are the main program priorities. IMF staff recommended a more active role for monetary policy in encouraging market interest rate adjustments. With global markets in distress, the authorities should work on contingency planning to keep the financial sector strong.

Abstract

The staff report for the First Review Under the Stand-By Arrangement with the officials of Georgia highlights economic developments and policies. Sustaining economic growth and maintaining confidence in the currency and the financial system within the constraints of available external financing are the main program priorities. IMF staff recommended a more active role for monetary policy in encouraging market interest rate adjustments. With global markets in distress, the authorities should work on contingency planning to keep the financial sector strong.

Annex I. Georgia: Relations with the Fund

(As of October 31, 2008)

I. Membership Status: Georgia joined the Fund on May 5, 1992.

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to Fund (Expectation Basis):

(SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Safeguard Assessments:

An update safeguards assessment of the National Bank of Georgia (NBG) required in conjunction with the Stand-By Arrangement approved on September 15, 2008 is substantially completed. This assessment found that the NBG has developed its safeguards in many respects, namely: (i) its financial statements comply with a recognized accounting and financial reporting framework (i.e., International Financial Reporting Standards); (ii) the financial statements are audited by international firms in compliance with International Standards on Auditing, and receive a “clean” opinion (latest opinion is for the year ended December 31, 2007); and (iii) the audited financial statements are published in the NBG’s Annual Report and on its website. However, the NBG faces emerging risks as it modernizes its reserve management practices and accounting systems, and responds to the impact of the August conflict and the global financial crisis. To address such risks, the NBG needs to modernize its audit oversight functions by reconstituting its audit committee with only non-executive members, commission a quality assurance review of its internal audit function, move to longer-term appointments of its external auditor to improve audit efficiency and effectiveness, and require its internal audit department to audit the monetary data reported to the Fund at each test date and at the financial year-end. The update assessment report is expected to be finalized before the first review under the SBA.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

Not Applicable.

IX. Implementation of HIPC Initiative:

Not Applicable.

X. Exchange Arrangements:

(a) Since April 29, 1993, the Tbilisi Interbank Currency Exchange (TICEX), established by the NBG and a group of commercial banks, has conducted periodic auctions to determine the exchange rate of the domestic currency vis-à-vis the U.S. dollar. These auctions are conducted daily. Foreign exchange bureaus are allowed to buy and sell foreign currency bank notes. A temporary de facto exchange rate peg to the U.S. dollar was introduced in the wake of the early August armed conflict. During the second week of November, the authorities allowed a 16 percent depreciation of the lari.

(b) Georgia maintains no exchange restrictions on the making of payments and transfers for current international transactions except for exchange restrictions maintained for security reasons, and notified to the Fund pursuant to Executive Board Decision No. 144-(52/51).

XI. Article IV Consultation:

The 2006 Article IV consultation was concluded on March 31, 2006.

XII. FSAP Participation:

Two FSAP missions visited Tbilisi during May 1-15, and July 24-August 7, 2001. An FSAP update mission visited Tbilisi during February 15-28, 2006.

XIII. Technical Assistance:

See Table 1 of this Annex.

Table 1.

Georgia: Fund Technical Assistance Missions, 2004–07

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XIV. Resident Representative:

The Fund has currently no permanent resident representative in Georgia, but Mr. Edward Gardner, Senior Resident Representative in Lebanon, visits Georgia between missions for discussions with the authorities.

XV. National Bank of Georgia Resident Advisors:

Ms. Vance, MAE peripatetic banking supervision advisor to the NBG, commenced a series of visits to Tbilisi in September 1997. Mr. Nielsen, an MAE advisor, provided technical assistance to the NBG in May 1998. Mr. Viksnins was an MAE peripatetic advisor to the NBG president starting in October 1999. Mr. Fish was resident advisor on banking supervision from August 10, 1999 to January 31, 2002. Mr. Bernard Thompson provided peripatetic technical assistance in accounting and internal audit in March and August 2000. Mr. Wellwood Mason provided technical assistance on payment system issues on a peripatetic basis in 2002 and 2003. Mr. Howard C. Edmonds served from September 2004 to October 2007 as a resident advisor on banking supervision issues.

XIV. Ministry of Finance Resident Advisors:

Mr. Sharma was an FAD resident advisor and assisted the authorities in the development of a Treasury beginning in May 1997. Mr. Sainsbury, an FAD advisor, assisted the ministry of finance from June 1998 to November 1999. Mr. Chaturvedi was FAD resident advisor in 2001 and 2002 to assist the authorities in continuing the development of the Treasury and the Treasury Single Account, in revising the legislative framework, expenditure control systems, and budgeting issues. Between 2001 and 2003, Mr. Welling was an FAD peripatetic advisor to assist the State Customs Department in preparing and introducing measures for the custom reform and modernization program. In March 2005, Mr. Zohrab started advising the authorities on treasury-related reforms, and his term ended in November 2006.

Annex II. Georgia: IMF-World Bank Relations

Partnership in Georgia’s Development Strategy

1. Georgia had a strong economic performance until August of 2008 when the conflict with Russia broke out resulting in severe shocks to macroeconomic stability and a sharp deterioration in investor and consumer confidence. GDP growth which had averaged above 12 percent in 2007 and 8.6 percent in the first half of 2008 is projected to decline sharply in the second half of 2008 and remain below 4 percent through 2009; largely affected by the sharp decline in the private capital inflows which have been the main driver of growth in the last few years.

2. The international community through an October 2008 Donors’ conference led by the World Bank and the European Commission responded positively by providing pledges of financial support totaling 4.5 billion dollars over the period of 2008–2010 to provide financial assistance in light of the sudden decline in capital inflows; to help Georgia with its external financing needs to maintain its macro stability; to assist with rebuilding of its damaged infrastructure; and to help Georgia cope with the downturn of the economy and the substantial social needs of its new and past displaced population.

3. Georgia has been a member of the World Bank since 1992 and the International Development Association (IDA) since 1993. With borrowings of US$1062.5 million for 48 operations, Georgia is one of the largest IDA borrowers in the CIS. There are currently sixteen IDA operations under implementation. The last World Bank Country Partnership Strategy (CSP) of Georgia for FY06-09 was presented to the World Bank Board of Executive Directors in September 2005. The CPS, built on the Economic Development and Poverty Reduction Program (EDPRP) of the Government (its PRSP), was designed to assist Georgia in implementation of its reform program. A CPS Progress Report to assess the mid-term progress in the implementation of the CPS was presented to the Board in June 2008.

4. The Poverty Reduction Support Operation series, four annual operations of the last four years have been the cornerstone of the Georgia CPS Strategy and have supported further elaboration and implementation of the key elements of the Government’s poverty reduction strategy as described in the PRSP (EDPRP) Progress Report. The Fourth PRSO, the last in the series was approved on May 27, 2008.

5. In response to the August conflict and to help Georgia sustain its overall reform program in the face of unanticipated strains to the 2008 budget, a Supplemental Financing to Georgia’s PRSO IV in the amount of US$40 million was processed on an expedited basis and presented and approved by the IDA Board on October 2, 2008, along with a Municipal Infrastructure Development Project in the amount of US$40 million which included an additional component to provide funding for the housing needs of the newly displaced population. In parallel, IDA responded to a request from the Government for the extension of the East-West Highway to improve transport access in light of the infrastructure damage caused by the conflict, by providing US$20 million additional funding to the existing Second East-West Highway which was approved by the Board on October 30, 2008.

6. A Joint Staff Advisory Note was prepared which together with the second PRSP Progress Report were presented to the Boards of IDA and IMF in September 2006. The IMF presented the Staff Report of the Sixth and final Review under the PRGF arrangement to the IMF Board in August 2007. In the wake of the August events, an 18-month Stand-By Arrangement (SBA) in the amount of US$750 million was approved by the IMF Board on September 15, 2008 to restore investor confidence, with its first purchase of US$250 million disbursed upon approval. The IMF conducted a first review mission of the SBA in early November.

7. The Fund has taken the lead in assisting Georgia in improving macroeconomic stability and pursuing fiscal reforms. The World Bank has taken the lead in the policy dialogue on structural issues, focusing on: (i) strengthening public expenditure management; (ii) improving performance of the public sector; (iii) reducing corruption; (iv) deepening and diversifying sources of growth; (v) protecting the environment; and (vi) reducing poverty.

8. The PRSO program and Supplemental Financing to PRSOIV have focused on four central reform areas: (i) strengthening public sector accountability, efficiency, and transparency; (ii) improving electricity and gas sector services; (iii) improving the environment for private sector development; and (iv) improving social protection, education and health care services.

9. Other support has come in the form of project support and Analytic and Advisory Activities across a broad spectrum of areas including education, health care, social protection, energy, roads, water and sanitation, agriculture, agricultural research and extension, irrigation and drainage, forestry, environment, biodiversity, enterprise development, municipal development, judicial reform, and cultural heritage. A Public Expenditure Review (PER) was prepared in 2002, and a Trade Study in 2003. A Country Procurement Assessment Report (CPAR) was prepared in 2002 and a Country Financial Accountability Assessment (CFAA) in 2003. A Country Fiduciary Assessment (CFA) was prepared in 2007. A series of annual programmatic Poverty Assessments are being implemented with a report to be issued in 2008. A Programmatic Public Finance Policy Review (PPFPR) and a Country Economic Memorandum (CEM) are planned for FY09.

10. Georgia became a shareholder and a member of IFC in 1995, and IFC has financed projects in the finance projects in the financial, infrastructure, oil and gas, and manufacturing sectors. IFC’s portfolio in Georgia as of January 2008 stands at about $93 million with seven clients. In the financial sector, IFC has focused on supporting the development of the housing finance market, providing investment and technical assistance to three leading banks—TBC Bank, the Bank of Georgia, and Bank Republic. To reach small and medium enterprises, IFC helped to establish ProCredit Bank of Georgia, the country’s first bank specializing in lending to micro and small enterprises. IFC has also provided a credit line to TBC Leasing to support the rapid growth of their portfolio of SME clients. In FY08, IFC also supported GRDC in their financing of the development of office and retail space.

11. IFC has also mobilized its investment assistance to provide stability to the Georgian banking system which is facing significant challenges following the August conflict as well as funding constraints exacerbated by the current situation in international financial markets. In partnership with EBRD and OPIC, a new investment project will provide Bank of Georgia, the largest bank in Georgia, with the required capital to continue lending to Georgian individuals and SMEs, which is critical for the further development of the Georgian economy. Support to the banking sector would remain IFC’s first priority in the World Bank Group’s post-conflict strategy in Georgia. IFC would continue to look for opportunities to provide systemically important banks with a mix of equity, subordinated loans, trade lines and senior debt funding. In addition, IFC would continue to support SME and microfinance borrowers through the banks, as well as other emerging financial market leaders to deepen the financial sector and increase the range of financial products available.

12. In the real sector, IFC’s most recent transaction is a loan to TAV to support their construction of new airport terminals in Tbilisi and Batumi. In oil transit, IFC has provided equity and credit to local and international companies, including investments by British Petroleum and other sponsors in the construction of the Baku- Supsa Early Oil Pipeline and the Baku-Tbilisi-Ceyhan Pipeline. Other investment projects have been in electricity distribution (AES-Telasi), mineral water (GGMW), and glass bottle production (Ksani Glass Factory). In the real sector, IFC continues to look for opportunities to support the growth of the private sector, particularly in export-oriented companies or those that support overall private sector development. Sectors of interest include agribusiness, infrastructure, manufacturing, and the development of natural resources.

13. IFC has also provided donor-supported technical assistance to strengthen its client banks and introduce new financial products (including leasing and housing finance). IFC is currently providing technical assistance in Georgia to improve the business climate and corporate governance practices. The World Bank-IFC Doing Business report has ranked Georgia as a top reformer in its Doing Business 2008 report, and the Government is actively engaged with IFC to make further progress on reforms for the business enabling environment.

14. The division of responsibilities between the World Bank and the IMF is described in the next section. In a number of areas—for example, the social sectors, rural development, environment, and infrastructure—the World Bank takes the lead in the dialogue and there is no related conditionality in the IMF-supported program. The World Bank is also leading the dialogue on private sector development and energy, and the World Bank analysis serves as inputs into the Fund program. In other areas—the financial sector, public expenditure management, and civil service reform—both institutions are working together. Finally, in areas like monetary policy and domestic customs revenue, the IMF takes the lead.

IMF-World Bank Collaboration in Specific Areas

Areas in which the World Bank leads and there is no direct IMF involvement

15. In the social sectors, IDA updates Georgia’s Poverty Assessment based on quarterly household survey data. IDA’s focus has been to improve execution of budgetary expenditures for health, education and poverty benefits and to raise the efficiency in the use of scarce public resources. Through the Social Investment Fund credits, IDA is focusing in particular on areas with high poverty levels to provide basic infrastructure to the poorest communities. Through the PRSO program, IDA is strengthening the dialogue with the Government on social protection reform (safety nets, pensions, poverty benefits, labor market institutions and policies). Under the PRSO program, a poverty benefit targeted for the extreme poor is being implemented.

16. In education, the Adaptable Program Credit of Education System Realignment & Strengthening Program (APL #1 and APL #2) addresses a broad spectrum of educational reform issues, aimed at improving learning outcomes of primary and secondary students through curriculum reform, development of a national assessment and examination system, training of teachers, provision of learning materials, and development of capacity to make better use of physical, financial, and human resources. It also tackles key financing issues through the introduction of a per capita based formula for financing basic education. The second phase of the program provides continued assistance to the implementation of the institutional and policy framework adopted under phase one of the program and includes support to schools in emergency conditions. The PRSO program is supporting the Government’s efforts in institutionalizing systemic changes initiated with its education reform strategy.

17. In health, IDA credits support the government in improving provision of primary health care services by providing training, equipment and supporting the health information system as well as capacity building in management. IDA is supporting the provision of health insurance coverage for the poor and has conducted the initial impact evaluation of this program. IDA is engaged in policy dialogue with the government on health sector reform through the PROS program as well as Health Technical Assistance by providing policy advice on regulatory framework for health insurance market, provider payment issues and benefit package.

18. In infrastructure, support is being provided through the Secondary and Local Roads Project, the First East-West Highway Improvement Project, and the Second East-West Highway Improvement Project and its additional funding to finance improvement of country’s main, secondary and local road infrastructure, as well as through the Municipal Development and Decentralization Project II and the Social Investment Fund Project to finance critical infrastructure needs at the municipal and community level. Under the latter primarily school and health facility heating and repair, small hydropower schemes rehabilitation, drinking water and sanitation rehabilitation, street lightning improvements, as well as local transportation infrastructure rehabilitation has been targeted. The ongoing Infrastructure Pre-Investment Facility project is to facilitate infrastructure investments of strategic importance and/or special complexity by providing technical assistance to assess the feasibility and effectiveness of investments, focusing on energy and transport sectors. Specifically, it targets preparation of First and Second East-West Highway Improvement projects, preparation of Khudoni Hydro Power Plant project (if feasible).

19. In rural development, IDA credits have supported development of private sector farming and agro-processing improvements, agricultural credit, irrigation and drainage, and agricultural research. IDA credits have also been supporting creation of local institutions, such as rural credit unions and water users associations. A recently approved Rural Development Project is to develop the productivity and profitability of the private agriculture sector with the aim to increase incomes and employment and reduce poverty in rural areas.

20. A recently closed Judicial Reform Project provided funds for development of new court administration and case management procedures, rehabilitation and construction of courthouses, a computerized network system, assistance for judicial training, and an extensive public information and education outreach effort to inform citizens of their rights and communicate the Government’s reform efforts.

Areas in which the World Bank leads and its analysis serves as input into the IMF program

21. The World Bank leads the dialogue on structural reforms through the PRSO program. Institution building and technical assistance have been supported through the Structural Reform Support Project. The World Bank also leads in the areas of:

a) Private Sector Development. The PRSO program and IFC’s advisory work focus on improving investment climate and reducing constraints to private sector development in Georgia. IDA has also been supporting private sector participation in other areas, such as energy, urban services and agriculture. The IMF has worked with the authorities to initiate audits of the accounts of three major state-owned enterprises.

b) Energy. The energy system was in poor condition, with unreliable supply and unsustainable debts. However, under the PRSO program, the Georgian authorities have made progress and payment collections and service levels have improved substantially in the power sector. The Government of Georgia has been working with IDA and other donors, including the Fund, to implement a series of short-term action plans and longer term steps to improve the overall functioning of the sector. At the beginning of the PRGF program, the Fund has been focusing on reducing quasi-fiscal losses in the sector. The World Bank through the PRSO program focused on improved bill collections, the handling of sector legacy debt, some sector restructuring, and the pursuit of tariff policies at cost-recovery levels was facilitated by a World Bank-assisted review of the tariff policy methodology. The Georgian authorities have prepared and implemented Energy Sector Strategic Action Plans and updates thereof under the PRSO program since 2005. In an ongoing operation, the World Bank finances a feasibility study for a major, new hydropower plant that could add about 20 percent to the country’s hydropower capacity.

c) Public Sector Management. The PRSO program supports through its first pillar, inter alia, improving public expenditure policies and management; implementing procurement reform; strengthening public financial management accountability; implementing intergovernmental fiscal reform; developing a strategy for administrative and civil service reform; and implementing the National Anti-corruption Strategy. The Public Sector Financial Management Reform Support Project (IDA grant pooled together with resources from other donors) is to provide technical assistance and capacity building in support of the first pillar of the PRSO program. The Fund is providing technical assistance in support of tax and customs administration reform.

d) Municipal Finance: The Municipal Development and Decentralization Project II has been assisting the Government to review the current intergovernmental fiscal relation, and to suggest an equalization transfer system to compensate for horizontal fiscal disparities across local governments.

e) Health Sector: The Structural Reform Support Project supported the GoG in the improving of the secondary health care services by reducing the surplus of hospitals and personnel, providing the various types of the technical assistance in health care financing, HR development, service provision, quality of services. Number of medical facilities has been renovated, equipped and staff trained, so they can offer the decent quality of services to the population of Georgia.

Areas of shared responsibility

22. The World Bank and the Fund have been working jointly in the following main areas:

a) Poverty Reduction Strategy. Both institutions have been working closely with the Government to support the implementation of the PRSP (or EDPRP as it is known in Georgia), through seminars and workshops, direct staff input, and donor coordination. A JSAN on the progress with implementation of the Government’s EDPRP was issued in September 2006.

b) Budget Planning and Execution. The PRSO program is supporting reforms to improve public expenditure policies and management including development of an MTEF, and strengthening public financial accountability. The Public Sector Financial Management Reform Support Project is financing technical assistance and necessary investment to support budget planning and management processes within the MoF and line ministries. The Fund is focusing on treasury reform within the Ministry of Finance.

c) Financial Sector Reforms. The joint Financial Sector Assessment Program has supported: (i) strengthened banking and non-banking supervision; (ii) introduction of international accounting standards; (iii) consolidation of banks through higher capital requirement ratios; (iv) anti money-laundering legislation; (v) strengthening the regulatory environment and removing impediments for development of viable non-bank financial institutions; and (vi) strengthening the payment system. IFC has worked to strengthen the banking sector through investment and technical assistance, and has supported the development of the financial leasing market through technical assistance. The Fund has focused on banking supervision, anti-money laundering legislation, and improvements in monetary control instruments with extensive technical assistance from its Monetary and Capital Markets Department.

Areas in which the IMF leads and its analysis serves as input into the World Bank program

a) Fiscal Framework and reforms in tax policy and tax and customs administration. The Fund’s focus on prudent fiscal policy has served as an important framework for IDA’s work on public expenditure management. The Fund’s Fiscal Affairs Department has the lead in the areas of tax policy and tax and customs administration reform.

b) Economic Statistics. IMF technical assistance has been conducive to improvements in national accounts, price, monetary and government financial statistics. The World Bank’s grant on Statistical Capacity Building will build on the recommendations of Fund TA to strengthen the quality of national accounts statistics.

Areas in which the IMF leads and there is no direct World Bank involvement

a) Monetary Framework. The IMF collaborates closely with the NBG in the design and implementation of a monetary program that aims at rebuilding international reserves while keeping inflation low and monetizing the economy.

World Bank Group Strategy

On September 15, 2005, the World Bank Executive Board endorsed the new Country Partnership Strategy (CPS) for FY06-09 designed to assist Georgia with deeper institutional reform as well as more fundamental infrastructure improvements. A CPS Progress Report assessing mid-term progress in the implementation of the CPS was presented to the Board in June 2008. In general, the first two and a half years of the CPS period have been characterized by rapid reform with most of the CPS goals achieved on schedule or earlier than anticipated. The First PRSO, of a series of single tranche annual Poverty Reduction Support Operations was approved in September 2005 (US$13.5 million is a regular IDA credit and US$6.5 million is an IDA grant). The Second PRSO for US$ 20 million of IDA credit was approved by the World Bank’s Board in October 2006. The Third PRSO for US$20 million of IDA was approved by the World Bank’s Board in June 2007, and the Fourth PRSO, the last in the series of PRSO was approved in May 2008.

A Supplemental Financing to Georgia’s PRSO IV in the amount of US$40 million was processed on an expedited basis and presented and approved by the IDA Board on October 2, 2008. Other recent operations include a US$40 million Municipal Infrastructure Development Project was approved on October 2, 2008, and aUS$20 million additional financing for the Second East-West Highway Project approved on October 30, 2008.

The US$19 million First East-West Highway Improvement Project and a $35 million Second East-West Highway Improvement Project were approved in November 2006 and November 2007 respectively. A US$15 million Education System Realignment & Strengthening Program supported by the Japanese government co-financing grant in the amount of US$4. 9 million,, a US$5 million Infrastructure Pre-Investment Facility, a US$3 million grant Public Sector Financial Management Reform Support Project, a US$24 million Reform Support Credit, a US$20 million Secondary and Local Roads Project, a US$3.6 million Electricity Market Support Project, a US$10 million Rural Development Project, US $ 20 million PHC Development Project, US $ 10 million Avian Influenza Control and Human Pandemic Preparedness and Response Project and a US$5 million Irrigation and Drainage Community Development Project Additional Funding for flood control.

The World Bank continues its discussion with the Government on a more comprehensive medium-term reform strategy that would be supported by possible future programmatic Development Policy Credit series and technical assistance operations.

Questions may be referred to Ms. R. Quintanilla (202-473-7673), Ms. Afsaneh Sedghi (202-473-7518), or Mr. A. Cholst (202-458-0324).

Annex III. Georgia: Relations with The EBRD

(As of October 31, 2008)

1. As of October 31, 2008, the European Bank for Reconstruction and Development (EBRD) had signed 75 investments in Georgia with cumulative commitments totaling USD 755.29 million.1 Current Portfolio Stock equals to USD 504.97 million. The EBRD’s first operation, a power rehabilitation project, was signed in December 1994. Since then, the pace and composition of portfolio growth has varied significantly from year to year.

2. During 2007 the Bank had signed 23 transactions in Georgia totaling USD 162.00 million. The Bank provided syndicated loan to ProCreditBank Georgia (USD 8 m); increased its equity participation in the Republic Bank, introduced Medium size co financing facility (MCFF) in Republic Bank and signed three sub operations under the facility in agriculture and health sectors (total USD 9.35m). MCFF has been successfully working for several years in one of the country’s largest Bank TBC, with which the Bank signed six additional projects under the MCFF in agriculture (USD 26m), general industry (USD 1 m) and natural resources (USD 3 m) sectors. The Bank financed mortgage lines to TBC Bank (USD 12 m) and Republic Bank (USD 4 m) and provided loans to the Republic Bank (USD 10 m), Cartu Bank (USD 7 m) and Basis Bank (USD 6m) for on-lending purposes to medium, small and micro enterprises. The Bank introduced Energy Efficiency facility in two Georgian Banks: TBC Bank (USD 10 m) and Cartu Bank (USD 5 million).

3. As at 31 October 2008 the Bank’s annual business volume reached USD 110.2 million through its 14 transactions. The project examples include: USD 7.5m loan to TBC Bank for development of SMEs, additional mortgage loan (USD 20m) to Republic Bank, the equity investment in Basis Bank, equity increase and subordinated debt (USD 5 m) to the Republic Bank. In 2008 the Bank signed two operations in municipal and environmental infrastructure development sector, namely: Batumi Public transport (USD 3.2m) and Kobuleti water improvement projects (USD 1.9 m). In October 2008 the Bank provided USD 14 m loan to the company Geo Steel to finance construction and operation of 175 k ton capacity steel mini-mill.

4. The ratio of private sector projects in the portfolio now stands at 83.5 percent. The Bank plans to focus primarily on private sector financing, but may also consider selected public sector projects. The Bank will give preference to non-sovereign operations although, where sovereign guarantees will be required, donor co-funding on a grant basis will be sought.

5. Georgia is part of the ‘Early Transition Countries’ (ETC) initiative. Launched in April 2004, the initiative aims to increase investments in the Bank’s seven poorest countries. The initiative builds on international efforts to address poverty in these countries. Through this initiative, the EBRD focuses its efforts on private sector business development and selected public sector interventions. It aims to stimulate market activity by using a streamlined approach to financing, focusing on smaller projects, mobilizing more investment, and encouraging ongoing economic reform. The Bank will accept higher risk in the projects it finances in the ETCs, while still respecting the principles of sound banking. Since launch of the ETC initiative the Bank’s annual business volume in Georgia has been increased five times.

Table 1.

Georgia: EBRD Portfolio for Georgia As of October 31, 2008 (US$, million)

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Annex IV. Georgia: Statistical Issues

1. Data provision has some shortcomings, but is broadly adequate for surveillance and program monitoring. The Fund has provided technical assistance (TA) in the compilation of macroeconomic statistics (Annex I, Table 1). Despite improvements in the areas of national accounts, price, monetary, and government finance statistics, the quality of macroeconomic statistics remains poor, reflecting insufficient resources and deficiencies in statistical methodologies and coverage. Problems are particularly acute in the compilation of national accounts, balance of payments, foreign trade, and fiscal statistics.

2. The data module of the Report on the Observance of Standards and Codes (ROSC), prepared in July 2002 was published on the Fund’s external website on May 27, 2003. A General Data Dissemination System (GDDS) mission in November helped finalize metadata and on December 15, 2006 Georgia began participation in the GDDS. Since then the country is working to meet the requirements of the Special Data Dissemination Standard.

Real sector statistics

3. National accounts statistics follow the concepts and definitions of the System of National Accounts 1993. Annual and quarterly GDP estimates are compiled by both the production and expenditure approaches. Preliminary national accounts estimates are available after 85 days, and final estimates after 13 months. The 2002 data ROSC mission found several weaknesses regarding data sources, including poor coverage of units in terms of value added for agriculture, retail trade, construction, catering, and services; limited administrative sources to estimate the nonob served economy; and inadequate data for imports and exports of services (taken from the balance of payments). Follow-up missions in 2004 and 2005 found that although the authorities have made good progress in addressing some of these issues, there was scope for improving the constant price estimates and advancing the development of the system of supply and use tables. On price statistics STA missions in May/June 2006 and August/September 2007 both reported important progress regarding the development of agricultural price indices, although inadequate funding was causing delays in implementation. The authorities’ plans for improvements include the compilation of supply and use tables in current and constant prices, as well as launching a PPI for agriculture.

Monetary and financial statistics

4. A March 2002 STA mission found that the authorities had implemented many of the recommendations of the December 2000 mission. The July 2002 data ROSC mission found that most elements in the data quality assessment framework for monetary statistics were fully or largely observed and recommended improvements in the statistical coverage of nonbank depository corporations and the provision of documentation on metadata. It also recommended increased transparency regarding access by governmental agencies to monetary statistics prior to their release to the public.

5. In accordance with the Monetary and Financial Statistics Manual, the NBG has begun compiling monetary data using the framework of the STA’s Standardized Report Forms (SRF) and has been providing data regularly. These data have been published in the IFS Supplement since September 2006. Beginning from December 2001, data published in IFS have been revised in accordance with the SRF.

6. A TA mission is scheduled for March 2009 to assist the NBG in developing a data reporting and compilation framework for Other Financial Corporations.

Government finance statistics

7. Annual and monthly Government finance statistics (GFS) compiled on a cash basis in accordance with the methodology of the GFSM 2001 are reported to STA for publication in the GFS Yearbook and International Financial Statistics, respectively. The country is well advanced on a program of reform to their central and local government budget and accounting systems to fully adopt the GFSM 2001 methodology and the International Public Sector Accounting Standards (IPSASs), including the staged introduction of accrual recording into transactions data, and an expansion in the range of items recorded in the balance sheet. These reforms are documented in the paper Accounting Reform Strategy, 2007–17. The authorities’ commitment to the accounting reform strategy is set out in Decree 101 issued by the Minister of Finance on February 10, 2006. This decree approves the general strategy, but implementation of some of the individual steps in the transition plan will require amendments to the law of Georgia on the budget system (Budget System Law).

External sector statistics

8. A September 2006 TA mission in assisted the authorities to prepare an action plan for the transfer of responsibility for the compilation of balance of payments statistics from the DS to NBG; advised on the structure of the NBG’s new balance of payments division; and developed a framework for the collection of source data. The mission also helped to further develop the framework for compilation of an international investment position statement. The balance of payments compilation function was transferred to NBG in January 2007, although DS will remain the main provider of data for exports of goods and services and direct investment. The transfer led to improvements in data quality.

9. The STA Resident Statistics Advisor (RSA) stationed in Baku undertook six peripatetic TA missions to Georgia during April 2007-October 2008. The work of the RSA was focused on further improving Georgia’s data collection and compilation programs for external sector statistics. The major remaining weaknesses in external sector statistics are: (i) data sharing between the public institutions involved in producing external sector statistics is not yet implemented, and (ii) the data collection system for private sector liabilities should be improved.

Georgia: Table of Common Indicators Required for Surveillance

(as of November 14, 2008)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC (published on May 27, 2003, and based on the findings of the mission that took place during July 15-31, 2002) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

8 Same as footnote 8, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1

Evaluated at an exchange rate of US$1.2819 per euro.

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Cover IMF Staff Country Reports
Georgia: First Review Under the Stand-By Arrangement-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia
Author:
International Monetary Fund
Volume/Issue:
Volume 2009: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781451814682
ISSN:
1934-7685
Pages:
66
DOI:
https://doi.org/10.5089/9781451814682.002