Archil Mestvirishvili: “Executive members of the National Bank’s Board being in the majority contradicts the recommendation of the International Monetary Fund.”

Verdict: FactCheck concludes that Archil Mestvirishvili’s statement is TRUE.

Resume:

Vice President of the National Bank of Georgia, Archil Mestvirishvili, stated that for effective oversight, the number of non-executive members should exceed the number of executive members on the National Bank’s Board which is also envisioned in the recommendation of the International Monetary Fund. Mr Mestvirishvili also said that the law submitted to the Parliament contradicts the aforementioned recommendation.

According to the legislation, the National Bank’s Board consists of nine members. Of these members, there should be four executive and five non-executive members. However, one position of a non-executive member is vacant as of February 2023 and, in fact, the number of executive and non-executive members is equal. On 23 December 2022, the International Monetary Fund’s review assessed the aforementioned as a factor constraining the independent oversight of the Board and highlighted the need for legal amendments to address the gap (page 16). In turn, the draft organic law submitted to the Parliament to amend the Organic Law of Georgia on the National Bank of Georgia would have increased the number of executive board members and, therefore, contradicted the IMF’s recommendation.

Given all of these circumstances, FactCheck concludes that Archil Mestvirishvili’s statement is TRUE.

Analysis:

On 8 February 2022, at the sitting of the Parliament of Georgia’s Budget and Finance Committee where amendments to the Organic Law of Georgia on the National Bank were discussed (which envision the introduction of an additional position of the First Vice President), the Vice President of the National Bank of Georgia, Archil Mestvirishvili, stated: “The National Bank’s Board is its supreme oversight body and, therefore, it is important that the number of non-executive members is higher as compared to the number of executive members and this is a widely recognised principle. With this amendment [increasing the number of executive members]… it turns out that there are five executive and four non-executive members and, therefore, the National Bank’s Board as an oversight body will not be able to carry out its oversight functions. In addition… the IMF’s mission examined the National Bank and pointed out this problem. This is why we have one vacancy today. Today, there are four executive and four non-executive members and, therefore, it was their recommendation that it is important and should be guaranteed by the law that non-executive members should always be more as compared to executive members. This amendment is being prepared with the IMF as part of its technical assistance but the version proposed today contradicts this.”

The draft organic law of Georgia to amend the Organic Law of Georgia on the National Bank of Georgia was submitted to the Parliament of Georgia on 1 February 2023. According to the amendment, the introduction of one new executive position – First Vice President – was envisioned. According to the explanatory note of the draft law, the amendment was also precipitated by the vagueness of the current law, among other things, which does not specify which of the three Vice Presidents should assume the functions of the President in the case of his/her absence.

According to the current law, the National Bank is a body that oversees the financial sector and part of its essential functions/duties is to ensure price stability in addition to ensuring the stability of the financial system. According to the Law on the National Bank (Article 4), the bank is independent in its activity. Legislative, executive and other bodies should not intervene in its activity or monitor it except as provided under the Constitution of Georgia and this organic law. Article 7 of the same law governs the rule of appointment of the board members and their functions and duties. The National Bank’s Board consists of nine members with four executive members, including the President, three Vice Presidents and five non-executive members. At the moment of the consideration of this law (February 2023), one non-executive member position on the Board is vacant and, therefore, the number of executive and non-executive members is equal (4-4).

If Parliament had adopted the submitted draft law, the number of executive members should have increased to five (President, First Vice President and three Vice Presidents) whilst the number of non-executive members is only four. This, according to Archil Mestvirishvili’s statement representing the National Bank, would deprive the Board of an effective oversight mechanism.

In regard to the recommendation of the International Monetary Fund in its report published on 23 December 2023 (page 16), the IMF’s mission assessed the proportion of executive and non-executive members (4-4) on the National Bank’s Board as a factor constraining the independent oversight of the board and stressed that legal amendments are necessary to address this gap.

Ultimately, the draft law was amended and the number of the board’s executive members will not increase according to the final version of the law which was supported by the Finance and Budget Committee. In particular, there will be two Vice Presidents instead of three and the third Vice President will be replaced by the first Vice President. As a result, the number of non-executive members will be higher as compared to executive members. Of additional note is that the President of Georgia vetoed the law adopted by the Parliament on 23 February 2023, arguing that it was “neither needed, urgent or substantiated.”

Table 1: Executive Members of the National Bank’s Board

Given the recommendation included in the International Monetary Fund’s report, FactCheck concludes that Archil Mestvirishvili’s statement is TRUE.