20220620-IMF-Georgia_Request_for_a_Stand-By_Arrangement-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Georgia_91页_1mb

Georgia Stand-By Arrangement Summary

Core Content

The International Monetary Fund (IMF) approved a three-year Stand-By Arrangement (SBA) for Georgia with a total amount of US$280 million (equivalent to 100% of quota and SDR 210.4 million). The program is designed to support Georgia's economic policies, with about US$40 million immediately available. The Georgian authorities intend to treat the arrangement as precautionary, signaling their commitment to macroeconomic stability and credible policies.

Main Objectives

The SBA aims to:

• Rebuild fiscal buffers and control risks
• Achieve the inflation target and strengthen reserves
• Maintain financial sector resilience
• Foster stronger and more inclusive growth

Key Policies and Measures

A. Rebuilding Fiscal Buffers and Controlling Risks

• Focus on reducing the fiscal deficit, inflation, and external vulnerabilities
• Strengthen tax administration and review tax expenditures to increase revenues
• Target full compliance with the fiscal rule's deficit ceiling by 2023
• Implement reforms to state-owned enterprises and public financial management
• Use the precautionary stock of government deposits and donor/IFI financing to fund the deficit

B. Achieving the Inflation Target and Rebuilding Reserves

• The National Bank of Georgia (NBG) has raised its policy rate by 300 basis points since March 2021 to bring inflation down
• Inflation is expected to average 11% in 2022, gradually converging to the 3% target by 2024
• The NBG has introduced measures to enhance exchange rate flexibility and strengthen reserves
• Sanctions have been managed with banks adhering to international rules, limiting risks to the financial system

C. Keeping the Financial Sector Resilient

• The financial sector has shown resilience, with liquidity ratios above minimum requirements
• Non-performing loans (NPL) and restructured loans have declined since their peaks
• The NBG has introduced macroprudential measures, including adjusting mortgage loan maturity and recalibrating credit risk buffers
• Steps to improve financial safety nets, capital market development, and AML/CFT regulations are planned

D. More Sustainable and Inclusive Growth

• Structural reforms focus on improving the business environment and governance
• Education and labor market reforms aim to tackle high unemployment and labor market mismatches
• Investment in information technology infrastructure and digitalization is encouraged
• The program supports long-term growth and economic inclusion

Key Economic Indicators (2019–2023)

Outlook and Risks

• Growth is expected to moderate to around 3% in 2022 due to spillovers from the war in Ukraine and fading pent-up demand
• Inflation is expected to remain high in 2022 before gradually converging to the 3% target by 2024
• Current account deficit is projected to widen to 10.9% of GDP in 2022, narrowing gradually to 5.5% in 2027
• Gross international reserves are expected to decline to 62% of the ARA metric by 2024, but the SBA would help recover to 72% by the end of the program
• Key risks include prolonged spillovers from the war, new highly contagious variants of COVID-19, and external vulnerabilities

Program Modality

• The program is precautionary, providing support for economic policies over the next three years
• It includes structural reforms and macroeconomic stabilization measures
• The program is expected to enhance policy space and resilience in case of downside risks

Summary of Key Points

• Georgia's economy showed a robust recovery from the pandemic in 2021
• Spillovers from the war in Ukraine are expected to slow growth and increase inflation
• The fiscal deficit has declined, and revenues have improved due to strong tax collection and privatization
• The central bank has taken steps to control inflation and manage exchange rate volatility
• The financial sector has shown improvement in liquidity and asset quality
• Structural reforms are a key focus to promote long-term growth and reduce unemployment
• The IMF has provided a precautionary support to help Georgia navigate external shocks and maintain macroeconomic stability