An International Monetary Fund (IMF) team, led by Ms. Mercedes Vera-Martin, visited Tbilisi during September 11-17, 2019 to discuss recent economic and financial developments and progress with the structural reforms. At the end of the visit, Ms. Vera-Martin issued the following statement:
“Georgia’s economic fundamentals remain strong. Despite a less supportive economic environment, preliminary estimates suggest higher-than-envisaged economic activity in 2019H1, with growth at around 5 percent. Higher inflation in August (4.9 percent y/y) reflected an excise tax increase, higher food prices, and lari depreciation.
“Preliminary data suggests a significant current account adjustment in 2019H1. Higher exports and remittances helped narrow the current account deficit, while tourism inflows fell short of projections due to Russia’s ban on direct flights. Imports have contracted, driven by lower FDI–related demand and oil prices, and tighter lending standards. Growth in credit to the private sector remains sustained, supported by a pickup in corporate credit and lari-denominated mortgages.
“The team maintains its GDP growth forecast for 2019 at 4.6 percent, while inflation is projected at 5.4 percent at end-2019. Inflation is projected to converge to the 3-percent target in 2020 as monetary conditions tighten. The current account deficit is projected to narrow by almost 2 percentage points of GDP, to 6 percent of GDP in 2019. With increased downside risks to the outlook, including those arising from global trade tensions, safeguarding foreign exchange reserves now will help mitigate the impact of potential future shocks.
“We welcome the authorities’ continued commitment to prudent macro policies and structural reforms. In response to rising inflation expectations, the National Bank of Georgia (NBG) appropriately raised its policy rate by 50 basis points in September and signaled further rate hikes if inflationary pressures persist. The team recognizes that the depreciation of the lari in recent months may have weighed on Georgian families and businesses, especially those who have borrowed in foreign currency. On balance, however, exchange rate flexibility allows the economy to adapt to shocks faster and, therefore, serves the country well.
“Tax revenue collection remains strong, but measures are needed to reverse losses in tobacco excises in 2019. Improved budget execution has led to a welcome acceleration of public spending in the first half of the year, and the shift from current to capital spending continues as envisaged under the IMF program. Continued fiscal discipline over the medium term will keep debt at safe levels and support an adequate policy mix.
“The team also welcomes the government’s continued efforts in structural reforms to support higher and more inclusive growth, including those related to advancing the education reform. The government should proceed with the implementation of the Pillar 2 pension reform. Timely enactment of the legislation related to corporate insolvency and banking resolution will improve the business environment and financial sector resilience.
“We are grateful for the authorities open and constructive discussions during the visit. The team met with Prime Minister Gakharia, Vice-Prime Minister and Minister of Regional Development and Infrastructure Tskitishvili, Governor of the National Bank Gvenetadze, Minister of Finance Matchavariani, other senior officials, and representatives of the private sector and development partners. We look forward to continuing the dialogue during the October visit for the fifth review of Georgia’s economic reform program supported by the IMF.”
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