IMF praises Georgia's financial policies

The Executive Board of the International Monetary Fund (IMF) completed its sixth review of Georgia's economic performance on July 9. “Georgia’s economic recovery is gaining strength, backed by steady implementation of the programme’s economic policies. Nevertheless, risks caused by the recent weakness of foreign direct investment (FDI) inflows and related exchange rate pressures remain. The prompt policy response from authorities expressed in faster depreciation and a tightening of monetary and fiscal policies, places Georgia in a good position to meet the objectives of the programme and aim at securing macroeconomic stability and growth based on private sector financing and investment,” Naoyuki Shinohara, Deputy Managing Director and Acting Chair said after the Executive Board's discussions about Georgia.

About USD 713.8 million was granted to Georgia by the IMF under a Stand-By Arrangement (SBA) on September 15, 2008. On August 6, 2009, the Executive Board approved an augmentation of access under the SBA to an amount equivalent to USD 1,117.7 million and an extension of the SBA until June 14, 2011. The completion of the sixth review allows for the immediate purchase of an amount equivalent to USD 74.8 million. “The sizeable reduction in the fiscal deficit targeted for 2010 by nearly 3% of GDP brings the objective of reaching a fiscally safe position within closer reach. The adoption of new revenue measures by the Government of Georgia as well as their commitment to cap spending in 2010 is commendable,” Shinohara said in his special release.

Shinohara added that the decision to postpone the implementation of a requirement to hold a referendum prior to any tax increase will help maintain the necessary policy flexibility until the fiscal deficit has returned to wiser levels. The Parliament of Georgia passed this proposal, which is part of the Act of Economic Liberty, at its first reading on December 25, 2009 but it has been shelved since then. The proposal, which must pass a second and third reading before being adopted, obliges the Government to hold a referendum if it either decides to increase income tax, profit tax, VAT and customs tax or introduce a new tax.

The Executive Board granted a waiver for the nonobservance of the end-June 2010 performance criterion on the basis of the net international reserves of the National Bank of Georgia and a waiver on the applicability of the end-June 2010 performance criteria on the basis of the ceiling on the cash deficit of the consolidated Government. The Executive Board also modified the performance criteria for end-September 2010.

“Bank lending shows signs of recovery, supported by a gradual lowering of lending interest rates over the past year. The tightening of monetary policy in June was warranted and the policy stance should continue to be adjusted promptly to changing market conditions. The banking sector’s high levels of capital and provisioning continue to provide adequate buffers against adverse shocks, but continued close supervision of banks remains critical,” Shinohara concluded, encouraging the Georgian authorities to continue their efforts by targeting an ambitious reduction in the fiscal deficit in 2011.

Unfortunately Edward Gardner, IMF Senior Resident Representative in Georgia, was out of the country and couldn’t comment for The Messenger, but the National Bank of Georgia (NBG) explained that the IMF Executive Board has released the NBG from its obligations to the IMF concerning the minimal level of the monetary reserves and postponed the fulfillment of the obligation it placed on the Government of Georgia to ensure a particular upper limit of cash deficit.