Statement by the IMF Staff Representative on Georgia

The economic recovery has gained strength in Georgia. The corrective policy actions provide adequate assurances that the program objectives are on track. The success in mobilizing additional budgetary support and diversifying their financing sources is commended. Postponing implementation of a referendum requirement on tax increases, until the fiscal deficit has been returned to prudent levels, enhances policy flexibility. The recent tightening of monetary policy is warranted and should continue. The exit strategy has been reinforced by improvements in confidence accompanying the rebound in activity.

Abstract

The economic recovery has gained strength in Georgia. The corrective policy actions provide adequate assurances that the program objectives are on track. The success in mobilizing additional budgetary support and diversifying their financing sources is commended. Postponing implementation of a referendum requirement on tax increases, until the fiscal deficit has been returned to prudent levels, enhances policy flexibility. The recent tightening of monetary policy is warranted and should continue. The exit strategy has been reinforced by improvements in confidence accompanying the rebound in activity.

1. The following information has become available since the issuance of the staff report. These developments do not change the thrust of the staff appraisal.

Georgia: Quantitative Performance Criteria (PC) and Indicative Target, June 2010

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Sources: Georgian authorities; and Fund staff estimates.

The cash deficit data will not be available until July 27.

Actual figures and quantitative targets are based on program exchange rates.

The continuous performance criterion for external arrears is defined in paragraph 17 of the Technical Memorandum of Understanding.

2. The end-June NDA PC was met while the NIR PC was missed as expected. The level of new nonconcessional external debt contracted or guaranteed by the public sector was well within the ceiling set as an indicative target.

3. Following the accelerated depreciation of early June, exchange rate pressures abated rapidly and the lari has since appreciated slightly due to a seasonal rebound of inflows. Cumulative depreciation vis-à-vis the dollar since the beginning of the year was 9 percent as of July 6. On June 24, the National Bank purchased $10 million dollars in the foreign exchange market to slow the rate of appreciation and has not intervened since.

4. Real GDP growth was 4.5, year-on-year, in the first quarter of 2010, compared with staff projections of 3.2 percent. The program’s annual real GDP growth projection of 4.5 percent for 2010 is therefore well within reach. CPI inflation dropped further to 3.7 percent in June, mainly on account of lower food prices.

5. Parliament has approved the supplementary budget for 2010 that is consistent with program targets.

Georgia: Sixth Review Under the Stand-By Arrangement and Requests for Modification of Performance Criteria, Waiver of Nonobservance of Performance Criterion, Waiver of Applicability of Performance Criterion, and Rephasing of Purchase: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia.
Author: International Monetary Fund