In 2017 Georgia exceeded in meeting most of the commitments (economic indicators) taken as part of the International Monetary Fund’s (IMF) Extended Fund Facility. Georgia’s economic growth reached 5% last year and surpassed both the rate prognosis as well as the programme’s requirement of 4.3% and 3.5%, respectively. In addition, the current account has also improved significantly with the deficit having dropped to 8.7% (the programme required a deficit reduction to 12.9%). In regard to inflation, this requirement was not fulfilled with inflation exceeding the estimated figure and hitting 6.7%. In accordance with the IMF’s requirement, this indicator should not have exceeded 5.6%.
In total, the IMF has positively evaluated Georgia’s achievements in the last year and estimates for the 2018 macroeconomic indicators have been altered in a positive way.
Analysis As stated
by the President of the National Bank of Georgia, Koba Gvenetadze, Georgia has fulfilled all of the criteria as prescribed by the International Monetary Fund’s programme. Mr Gvenetadze also mentioned Georgia’s economic growth rate, inflation and the current account deficit whilst emphasizing that the greatest improvement is seen in the situation of the current account deficit.The Extended Fund Facility (EFF) is an International Monetary Fund programme which aims to support countries with low economic growth, tax imbalances and other unstable economic indicators. As part of this programme, Georgia will get financial assistance to implement multi-pronged economic reforms aimed at high economic growth. Georgia’s receipt of this assistance depends upon the IMF’s review. As a part of the programme, the Fund already published
its first overview in December 2017. The second review is to be approved and published by June 2018.
As part of the Extended Fund Facility’s first overview, Georgia was given the task of achieving a 3.5% GDP growth rate in 2017. In accordance with the preliminary data of the National Statistics Office of Georgia, the GDP growth rate reached 5% in 2017 which exceeds the EFF requirement by 1.5 and the initial prognosis by 0.7 percentage points. In 2013-2016, the real GDP growth rate was lower as compared to IMF estimated figures.
Real GDP Growth RateNote: We have taken the IMF’s prognosis for the respective years and 2017 year’s preliminary figure
In 2017 the inflation rate reached 6.7% thereby exceeding the Extended Fund Facility’s requirement by 1.3 percentage points. Therefore, this requirement was not met. The high inflation rate in the previous year was caused by the increase in the excise tax rate which is an indirect tax and affects the prices of products. As part of the first review, the programme inflation requirement for 2018 is 3.0% whilst the estimated figure is 3.2%. However, in accordance with the World Economic Outlook
published by the International Monetary Fund in April 2018, the forecast inflation rate for 2018 was cut to 3.0%. Georgia’s 2018 state budget also envisions an inflation rate of 3.0%.
Real and IMF Estimated Figures of Inflation (%)Note: We have taken the IMF’s prognosis for the respective years
In accordance with the accompanying documents of Georgia’s 2017 state budget, estimates for the state budget to GDP ratio were set at 44.2% whilst this figure was set at 42.3% in the IMF’s first review. As part of the Extended Fund Facility, the requirement for the maximum threshold of the state debt to GDP ratio was 45.5% in the previous year. The real figure at the end of the year demonstrated that Georgia’s state debt to GDP ratio was 42.3% which is 3.2% lower as compared to the maximum threshold required by the EFF. Therefore, this requirement was met as well.
State Debt to GDP Ratio: Real and IMF Estimated Figures (%)Note: The graph includes preliminary data for 2017
The current account is part of the balance of payments and reflects economic activity vis-à-vis other countries. One of the most important components of the current account are the export-import figures (trade balance). The current account also includes incomes received from abroad and remittances. FactCheck published an article
on Georgia’s foreign economic statistics in April 2018 where it is underlined that the principal reason behind the current account deficit is the negative balance in the trade of goods which is partially offset by tourism incomes (trading of services). In the previous month, the current account deficit dropped to 8.7% (the current account to GDP ratio). As per the Extended Fund Facility’s requirement, the maximum threshold is 12.9% whilst the estimated figure is 10.4%. Therefore, this requirement has also been met.
Current Account Deficit to GDP Ratio: Real and IMF Estimated Figures (%)
The Extended Fund Facility’s programme is focused on structural reforms such as the development of capital markets, the pension system, the administration of public finances, public-private partnerships (PPPs), the enhancement of competition and education reform. As part of the joint memorandum
with the International Monetary Fund, Georgia has taken commitments to prepare draft laws about the pension system as well as public-private partnerships.Pension System – As part of Georgia’s agreement with the International Monetary Fund, the country had to prepare a draft law about pension savings by December 2017 with an independent pension agency having to be launched before June 2018. A draft law on pension savings was prepared by the Ministry of Economy and Sustainable Development and the Government of Georgia introduced the bill to the Parliament of Georgia on 29 December 2017. Detailed information about the Law of Georgia on Pension Savings is given in FactCheck’s articles (link 1, link 2). Public-Private Partnerships (PPPs) – Another commitment taken as part of Georgia’s agreement with the International Monetary Fund was to introduce a draft law on public and private partnership by the end of 2017. The Ministry of Economy and Sustainable Development prepared the draft law and it was introduced to the Parliament of Georgia on 28 September 2017. The draft law envisions an improvement of the investment environment and the facilitation of joint infrastructural projects undertaken by the public and private sectors. In turn, the IMF was involved in the process of the preparation of the draft law at the level of recommendations. At the present moment, the draft law has passed the second hearing in the Parliament of Georgia.