Via IMF (Den Internationale Valutafond)

IMF Staff Concludes Virtual Review Mission to Georgia

November 10, 2020

  • The Georgian authorities and the IMF team reached a staff-level agreement for the completion of the Seventh Review under the Extended Fund Facility.
  • The IMF team expects GDP growth to rebound to 4.3 percent in 2021 as the effects of the pandemic fade, but considerable downside risks remain.
  • The prompt social and economic response of the authorities has helped contain the economic and social impact of the pandemic; structural reforms remain essential to limit economic scarring.

Washington, DC:
An International Monetary Fund (IMF) staff team led by Mercedes Vera Martin
conducted virtual discussions from October 5 to November 9, 2020, on the
Seventh Review under the Extended Fund Facility (EFF) arrangement.

At the conclusion of the mission, Ms. Vera-Martin issued the following

“Following productive discussions, the Georgian authorities and the IMF
team reached a staff-level agreement on the conclusion of the Seventh
Review of the EFF arrangement. Performance under the IMF-supported program
was satisfactory in the first half of 2020. The agreement is subject to
approval by the IMF management and the Executive Board. Consideration by
the Executive Board is expected in December 2020. Completion of the review
will make SDR79 million (about $112.1 million) available to Georgia,
bringing total disbursements under the EFF arrangement to SDR406 million
(about $576.4 million).

“The COVID-19 pandemic has had a major impact on Georgia’s economy. The
shock is expected to cause a contraction of 5 percent in GDP in 2020, one
percentage point greater than projected at the time of the Sixth Review, on
account of a more negative impact of the lockdown and a more protracted
shock. End-2020 inflation is projected at 3.5 percent as high food prices
during the lockdown have been fully offset by the decline in inflation
after the reopening. The external position has deteriorated as tourism
revenues came to a virtual standstill. The current account deficit is
expected to widen to 9.7 percent of GDP in 2020, from 5.4 percent in 2019.
Nevertheless, high remittances and lower imports have contained Georgia’s
external financing needs, and gross international reserves remain at
comfortable levels thanks to the augmentation under the IMF arrangement and
donor financing. The fiscal deficit is expected to widen on the back of
lower tax revenues and fiscal support measures provided to support those
impacted by the shock. Preliminary data suggest a tentative recovery in
domestic demand began in June. Growth in credit to the private sector has
remained robust, partly supported by government subsidies on
lari-denominated mortgages. Slack in demand combined with the post-lockdown
recovery in supply have recently put downward pressure on inflation.

“Growth is expected to rebound to 4.3 percent in 2021 as the effects of the
pandemic fade, but with considerable downside risks to the outlook. The
revision in the 2021 growth outlook, from 5 percent at the October 2020
World Economic Outlook, is attributed to uncertainty associated with the
regional conflict and the increased number of COVID-19 cases in Georgia.
Inflation is expected to converge to the 3-percent target by end- 2021.
Medium-term growth is projected to remain unchanged at 5¼ percent supported
by infrastructure spending and sustained structural reforms to increase
productivity and enhance private sector-led growth. Macroeconomic policy
discipline and donor support would keep reserves at an adequate level over
the medium term. The shock to tourism is expected to be protracted with
tourism receipts assumed to recover to 2019 levels only by 2024. The
current account deficit is projected at 5.5 percent of GDP by 2025,
financed predominantly by FDI. The authorities envisage to use all policy
tools available to limit further economic damage, if downside risks were to

“The National Bank of Georgia (NBG) has taken decisive actions to mitigate
the impact of the pandemic on the real economy and the financial sector.
The central bank provided lari and dollar liquidity and coordinated with
the Ministry of Finance the provision of long-term lari liquidity. We
welcome the authorities’ continued commitment to the inflation-targeting
framework and the floating exchange rate. The NBG reduced its policy rate
by a cumulative 100 basis points since April 2020 and appropriately
maintains rates steady since August to firmly anchor inflationary
expectations around its inflation target. Staff supports the current
monetary stance, which should be maintained until there are clear signs
that inflation remains on a downward trend in the context of recent lari
depreciation. Keeping inflationary expectations anchored may call for
tightening the monetary policy stance should pressures on lari exchange
rate feed into expectations.

“Banks have been generally resilient amid the pandemic, helped by their
sound initial capital and liquidity positions and the strong response by
the NBG in dealing with the shock. Staff welcomes the NBG’s proactive
monitoring of the impact of the crisis on asset quality in coordination
with the banks, while also making further progress in implementing the
resolution framework.

“The easing of the fiscal stance has appropriately supported economic
activity and protected jobs this year. Despite lower revenues, the
government expanded spending to minimize the economic and social impact of
the crisis. Among the measures, wage subsidies, cash transfers to
households, including those in the informal sector, expanded social
transfers, and temporary tax reliefs for businesses have helped sustain
activity. Smoother execution of the budget helped accelerate public
investment and VAT refunds. As a result, the fiscal deficit is projected to
reach 8.7 percent of GDP in 2020. The 2021 Budget continues to
appropriately support the recovery while laying the groundwork for fiscal
consolidation. The deficit, projected at 7.6 percent of GDP, includes
higher healthcare spending and measures to support households and
businesses that would help solidify the economic recovery in the context of
heightened uncertainty. Staff welcomed the authorities’ commitment to
medium-term fiscal sustainability as directed by Georgia’s fiscal rule,
which will bring the fiscal deficit under 3 percent of GDP and public debt
under 60 percent of GDP by 2023. The authorities continue to proactively
monitor fiscal risks associated with energy purchasing power agreements and
state-owned enterprises.

“Advancing the structural reform agenda remains essential to support the recovery,
limit the economic scarring from the pandemic, and achieve stronger,
resilient, and more inclusive growth, needed to improve the standards
of living for all Georgians.
Enhancing connectivity, facilitating access to finance, advancing the
education reform, and implementing the recently approved corporate
insolvency framework would increase Georgia’s competitiveness. The mission
also supports the authorities’ plans to reform state-owned enterprises,
which should create the conditions for a more efficient public sector and
boost private sector development.

“The IMF team would like to express its solidarity with all Georgians who
have been impacted by the health crisis, and to those who have worked
relentlessly at all levels of society to help their fellow citizens cope
with its consequences. The IMF team would like to thank the authorities,
our international development partners, and representatives of the private
sector, for the open and constructive discussions.”

IMF Communications Department


Phone: +1 202 623-7100Email:


READ ALSO  Detailsalget stiger betydeligt efter udbetaling af feriepenge