Giorgi Kakauridze: “The suspension of the IMF programme is related to the National Bank but not to the 19 September decree.”

Verdict: FactCheck concludes that Giorgi Kakauridze’s statement is TRUE.

Resume: The three-year programme of the International Monetary Fund, which envisaged the allocation of a USD 290 million credit, was launched in 2022. After the successful completion of the first phase, Georgia was given access to the USD 40 million loan, although the country did not make use of this opportunity given the higher than expected economic growth rate.

This programme was suspended in June 2023. The IMF has not provided any reasons for the suspension, although from the start it was linked to those legislative changes which introduced the new first vice-president position in the National Bank and the former Minister of Economy, Natia Turnava, assumed the functions of the Acting President of the National Bank.

The IMF opposed those changes from the very beginning and the suspension of the programme is precisely because of the situation in regard to the National Bank. However, it is not about its latest decision (postponing the enforcement of sanctions against Georgian nationals before the court’s guilty judgement). The programme was suspended three months before the 19 September decree.

Analysis

At the meeting with the Reforms Group in the Parliament of Georgia, the Deputy Minister of Finance, Giorgi Kakauridze, confirmed the suspension of the IMF mission: “The programme suspension is related to the issues pertaining the National Bank, although not to the specific decree [decree issued on 19 September saying that international sanctions against Georgian nationals can be mandatorily enforced only after the court’s guilty verdict] and I cannot answer on behalf of the IMF what is the precise reason for the suspension. The specific answer should be obtained from the IMF. I may know a lot of information, but I cannot answer for the IMF. It should have been discussed at the board approximately in June and since then, it has been suspended. Nothing has changed since then and we expect that the programme’s resumption will be possible by the end of this year.”

Georgia became a member of the World Bank and the International Monetary Fund in May 1992. The main objective of the IMF is to ensure financial stability. Given its specificity, the IMF has active relations not only with the member state governments but also with the central banks of these countries.

As of 31 August 2023, the Government of Georgia’s external debt was USD 8.154 billion. Of that amount, 2.4%, which is USD 196 million, was an obligation vis-à-vis the IMF. For the National Bank of Georgia, the IMF was the only creditor and the amount of credit was USD 415 million.

In accordance with the Constitution of Georgia, the National Bank is in charge of monetary policy. The institution is responsible for price stability (Article 68). However, despite independence granted by the country’s supreme law, the National Bank is unable to enact legislative changes. It was in the aftermath of the Parliament of Georgia’s amending the Law on the National Bank and overcoming President Zurabishvili’s veto that the IMF programme was suspended.

The three-year programme that Giorgi Kakauridze was talking about was launched in 2022. The programme envisioned the possibility of receiving a total credit in the amount of USD 290 million. According to the explanation of the Deputy Minister of Finance, after the completion of the first review, the Georgian side refused the USD 40 million loan through mutual agreement and the IMF itself suspended the programme in June.

In 2022, Georgia’s economic growth rate was 10.1%. Under an almost twice as high economic growth rate than expected (the initial version of the approved budget for 2022 envisioned a 6% GDP growth), refusing the USD 40 million loan was not a problem.

The already single-digit, but also higher than planned (7% growth in January-August) economic growth persisted throughout 2023 as well. In the case of Georgia failing to receive the remaining USD 250 million, this will not lead to a recession, although the amount of money is not a decisive factor in this case. IMF assessments affect the investment environment. A negative conclusion may cost the country two or four times the investment of 250 million. Furthermore, the credit resource becomes more expensive.

The programme has been suspended and Giorgi Kakauridze also confirms the probability of negative consequences if the programme is cancelled. At this meeting with the Reforms Group, Mr Kakauridze stated: “Ultimately, if the IMF not only suspends but cancels the programme and says that Georgia’s macroeconomic stability is under risk, this may pose a certain danger to the attraction of credit from other financial institutions. If we do not have the programme, we will have to argue separately with each financial institution about our macroeconomic stability. The IMF is proof that when you have a programme with IMF, it writes a report that your country’s macroeconomic stability is good.”

Tensions about the National Bank flared twice in one year. First, this happened after legislative changes when the position of the new first vice-president was introduced. The Parliament adopted the law in February and President Zurabishvili vetoed it, although the Parliamentary Majority overcame the veto in June.

The IMF opposed the changes from the beginning. The opposition claimed that the changes were related to one specific person, Natia Turnava. Prior to the changes, after the expiration of the term of office of the president of the National Bank and until the election of a new president, one of the vice presidents was appointed as acting president. On March 2, when Koba Gvenetadze's mandate was terminated, Archil Mestvirishvili took his place. At that time, Natia Turnava held the position of an ordinary member of the Board and technically was not eligible for the position of acting president.

After overcoming the veto, Natia Turnava, the former Minister of Economy, was elected as the First Vice President and Acting President of the National Bank. Overcoming the veto was called "astonishing" by the IMF. Soon after, the IMF confirmed to the Public Broadcaster that the second review was suspended, although they did not discuss the reasons. The FITCH rating company linked it partly to the legislative changes made as a result of the veto override.

The National Bank found itself mired into an even greater controversy in September when it decided to amend the 4 August decree and referring to the “presumption of innocence” revoked the obligation for commercial banks to enforce sanctions against sanctioned Georgian nationals until the court’s guilty verdict. Following Natia Turnava’s decision, all three vice presidents of the National Bank - Archil Mestvirishvili, Nikoloz Gagua and Papuna Lezhava - resigned from their positions. The Advisor to the Acting President of the National Bank, Giorgi Bakradze, also left his position. In order to stop the depreciation of GEL, the National Bank had to sell USD 65 million from international reserves.

The IMF suspended its programme three months before the National Bank’s latest decision. Therefore, it is wrong to draw any connections between these two. However, the latest events may affect the prospects of a continuation of the programme.

Although the macroeconomic indicators are positive in most cases – the GDP growth rate is higher than expected, investments have risen and the government debt to the GDP ratio has decreased, the potential cancelation of the IMF programme would still be a blow to the country’s image.