TBILISI

The International Monetary Fund (IMF) has reached a staff-level agreement with Georgia on a three-year Stand-by Arrangement (SBA) in the amount of $289 million, subject to approval by the IMF’s Executive Board, which is expected to consider Georgia’s request in
May.

Georgia’s economy was enjoying a strong recovery from the COVID-19 pandemic—growth reached 10.4 percent in 2021—before the Russian invasion of Ukraine.

“Spillovers from the war and sanctions are expected to lower Georgia’s growth to around 3 percent in 2022, raise inflation, and widen the current account deficit. The outlook is subject to a higher-than-usual level of uncertainty,” the IMF said in a statement.

“Georgia’s economy had proven resilient in the past, and with the support of policies under the authorities’ programme, we expect growth to pick up in 2023 and other key indicators to strengthen as well.”

The Fund said that the authorities’ programme aimed to maintain and further entrench macroeconomic stability in the context of back-to-back shocks from the pandemic and the war in Ukraine, strengthen medium-term growth, and enhance economic resilience.

“After substantial pandemic support, fiscal policies are geared toward reducing the deficit to comply with the fiscal rule by 2023, restoring fiscal buffers, and creating space for priorities such as infrastructure and education. Should spillovers from the war such as elevated global
commodity prices prove more severe than expected, targeted measures to help the vulnerable
could be considered within the budget envelope,” the IMF said.

The programme will also seek to improve public financial management and limit fiscal risks, especially through the finalisation and implementation of a strategy to enhance the governance of state-owned enterprises.

The Fund said that several global shocks had contributed to inflation that is well above target in Georgia. The country’s central bank continues to be appropriately focused on bringing inflation to target and we expect significant progress this year and next as global factors that are contributing to the surge in prices subside.

The inflation targeting framework combined with the flexible exchange rate regime has served Georgia well. The authorities are committed to exchange rate flexibility, which acts as a shock absorber, and interventions will be limited to smoothing excessive volatility and preventing disorderly market conditions, it said.

“Georgia’s financial sector has shown considerable resilience to the pandemic and the war in Ukraine, reflecting a robust supervisory and regulatory framework including the introduction and recalibration of macroprudential measures,” the Fund said.