The Executive Board of the International Monetary Fund (IMF) completed the first review of the three-year Stand-By Arrangement (SBA) for Georgia. The completion of the review enables access of USD 40 million. The Georgian authorities continue to treat the arrangement as precautionary.

“Strong growth of 10% is projected for 2022. This reflects limited adverse spillovers from Russia’s war in Ukraine, buoyant tourism revenues, a surge in war-related inbound migration and financial inflows, and a rise in transit trade through Georgia. These developments have lifted fiscal revenues and supported reserve accumulation. Inflation has been slowing but remains elevated at around 10½ percent due to high commodity prices and strong domestic demand.

Both growth and inflation are expected to moderate in 2023. A slowdown in global trade and tighter financial conditions should weigh on growth, which along with falling commodity prices, recent lari appreciation, and sufficiently tight monetary policy should help reduce inflation. Uncertainty and risks to the outlook remain high.

Following the Executive Board’s discussion, Ms. Antoinette M. Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

The Georgian economy has performed strongly in 2022 and thus far adverse spillovers from Russia’s war in Ukraine have had less impact than expected. The authorities have appropriately used recent positive outturns to rebuild fiscal and external buffers, and their performance under the program has been satisfactory. In the context of high uncertainty and risks to the global outlook, continued prudent policies are important to further entrench macroeconomic stability.

The authorities have used the revenue overperformance to achieve faster deficit reduction this year and committed to further deficit reduction to comply with their fiscal rule in 2023. Further progress on reducing tax expenditures, improving revenue administration, and strengthening public investment management will be important to increase fiscal space for priority spending and improve the quality of capital spending. The authorities have taken important actions on state-owned enterprise governance reform and renewable energy development, areas in which implementation of the strategies remains important, including to guard against fiscal risks.

The National Bank of Georgia has appropriately taken advantage of favorable conditions this year to rebuild international reserves more quickly than programmed. Monetary policy will need to remain sufficiently tight to bring down inflation and policymakers will need to be ready to tighten monetary policy further if high inflation persists. Continued exchange rate flexibility and prudent accumulation of reserves will provide Georgia further resilience against external shocks.

Advancing the structural reform agenda will support stronger and more inclusive growth. It will be important to improve competitiveness by strengthening the business environment and enhancing governance. The authorities’ plans for education reform and training programs will also help reduce unemployment and enhance inclusion. Finally, it will be important to prioritize among key infrastructure projects”.