IMF Reaches Agreement for Completion of the First Review of Georgia’s Extended Fund Facility
International Monetary Fund (IMF) team led by Mercedes Vera Martin visited Tbilisi from September 25 to October 9 to conduct discussions on the first review of the program supported by an Extended Fund Facility (EFF). The program aims to support Georgia’s ambitious reform agenda to generate higher and more inclusive growth and reduce economic and financial vulnerabilities.
At the conclusion of the mission, Ms. Vera Martin issued the following statement:
“The Georgian authorities and the IMF reached a staff-level agreement on the first review under the EFF. The agreement is subject to approval by the IMF’s Executive Board, which is expected to consider it in November. Completion of the review will make an additional SDR 30 million ($42.3 million) available to Georgia under the EFF, bringing total disbursements to SDR 60 million ($84.6 million).
“Georgia’s economic reform program is off to a strong start. All quantitative performance targets for end-June were met, most by large margins. The economy has grown faster than expected this year due to prudent policies and stronger economic activity in Georgia’s main trading partners. Growth has been revised upwards to 4.3 percent in 2017 from 3.5 percent, supported by exports, tourism, and investment. The current account balance is projected to narrow to 10.4 percent of GDP in 2017, from 12.8 percent of GDP in 2016. Economic growth is expected to strengthen over the medium term with continued implementation of the economic reforms. These reforms will promote private investment, productivity growth, and improve export competitiveness.
“Fiscal performance has been robust, driven by stronger-than-expected revenues, while expenditures stayed within the program targets. Revenues have been higher than expected and current spending has been contained which will allow for higher capital spending and repayment of VAT credits. The fiscal deficit under the program is now projected at 3.6 percent of GDP in 2017.
“The team also reached an agreement with the authorities on the key parameters of the 2018 budget. The 2018 budget aims to maintain fiscal consolidation efforts while allowing for higher public investment. The fiscal deficit is projected at 3.0 percent of GDP in 2018, supported by robust revenue growth and contained current spending.
“The authorities aim to continue limiting fiscal risks, to strengthen revenue administration and to increase the efficiency of the civil service. Their objective is to also improve disclosure of fiscal risks and increase transparency in public financial management.
“The current monetary policy stance under the program is adequate, and rightly focuses on price stability. While inflation has exceeded the central bank’s target so far in 2017, it is expected to decline rapidly as the impact of higher excise taxes abates. The flexible exchange rate regime continues to protect the economy against external shocks.
“Meanwhile, financial sector reforms have focused on strengthening financial regulation, supervision, and financial safety nets. The mission welcomes the authorities’ plans to bring non-banking lending institutions under oversight, and to improve the role of the central bank as the lender of last resort. Following the implementation of Georgia’s larization program, dollarization of deposits and loans has been declining.
“We also welcome progress in advancing the structural reforms. Decisive implementation of the authorities’ reform agenda will be essential to generate higher and more inclusive economic growth. Priorities include scaling up public investment, improving the business environment, reforming education, and enhancing governance.
“The IMF team would like to thank the authorities for open and constructive discussions and for their hospitality.”