20240523-IMF-Georgia_2024_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Georgia_99页_2mb

Summary of the 2024 Article IV Consultation with Georgia

Core Content

The 2024 Article IV Consultation with Georgia, conducted by the IMF, concluded that the country's economic performance remains robust despite a challenging global environment. The consultation included a Press Release, Staff Report, and a Statement by the Executive Director, which outlined the key findings and policy recommendations.

Main Views and Key Information

Economic Performance

• Growth: Georgia's real GDP growth has moderated from double-digit levels but remains above trend. In 2023, growth was 7.5% (y/y), and is expected to slow to 5.7% in 2024 before converging to a potential rate of 5% in the medium term.
• Inflation: Inflation declined sharply in 2023, reaching 0.5% (y/y) in March 2024, well below the National Bank of Georgia's (NBG) 3% target. However, it is expected to rise again in 2024 due to base effects and the normalization of monetary policy, peaking at 4% by year-end before converging to target.
• Fiscal and External Buffers: The fiscal deficit is projected at 2.5% of GDP in 2024, with a reduction in public debt and improved international reserves. Reserves are expected to gradually improve to 103% of the ARA metric by 2028.
• Current Account Deficit: The current account deficit is expected to widen in 2024 to 5.8% of GDP, mainly due to the normalization of remittances and a larger goods trade deficit. It should stabilize at around 5.5% in the medium term.

Risks to the Outlook

• Downside Risks: Reversal of war-related financial inflows and migrant flows, intensification of sanctions, and a loss of reform momentum before the October 2024 parliamentary elections are key downside risks.
• Upside Risks: Further migrant and FX inflows, increased transit trade, and investments due to shifting geo-economic patterns, especially with EU integration, could provide a positive boost.

Policy Discussions

A. Building Fiscal Space and Managing Fiscal Risks

• The authorities are advised to continue modest fiscal adjustment to maintain buffers under the fiscal rule and support productive spending.
• A medium-term revenue strategy and improved public investment management are essential.
• State-owned enterprise (SOE) reform is needed to reduce fiscal risks and align with EU principles.

B. Managing Inflation, Building Reserves, and Strengthening NBG Governance

• Monetary policy normalization should be gradual and cautious to keep inflation close to target.
• Exchange rate flexibility and reserve accumulation are important to mitigate risks from capital inflows, virtual assets, and sanctions.
• Strengthening the NBG's governance and independence is crucial for maintaining monetary policy credibility.

C. Keeping the Financial Sector Resilient

• The banking system is well capitalized and profitable but remains highly concentrated and dollarized.
• Macroeprudential measures, including higher FX lending floors, are being introduced to reduce currency risks.
• Continued vigilance against risks from capital inflows, virtual assets, and sanctions is emphasized.

D. Enhancing Georgia's Inclusive Growth Potential

• Structural reforms are needed to achieve stronger, more inclusive, and job-rich growth.
• Infrastructure investments and regional connectivity are priorities.
• Improvements in education, agricultural productivity, and judicial/anti-corruption reforms are critical to long-term growth and governance.

Executive Board Assessment

• The Executive Board agreed with the staff appraisal and emphasized the need for continued prudent policies and structural reforms.
• They highlighted the importance of maintaining macroeconomic stability and enhancing resilience against adverse shocks.
• The Board encouraged Georgia to make decisive progress toward EU accession to attract investments and improve the business environment.

Conclusion

The next Article IV consultation with Georgia is expected to be held on the standard 12-month cycle. The IMF remains engaged in supporting Georgia's economic development and stability.

Key Indicators Summary (2022–2026)

Additional Notes

• The IMF's transparency policy allows for the deletion of market-sensitive information.
• The staff report was completed on April 29, 2024, following discussions in March 2024.
• The mission team included representatives from various IMF departments and was supported by local experts and officials.
• The consultation included a review of key recommendations from previous assessments and a risk assessment matrix.