New IMF programme: Good news for Georgia
In April 2017 the IMF approved a new programme for Georgia worth USD 285 m over a three year period. The new programme under the Extended Fund Facility replaces the previous Stand-by Arrangement, which got derailed because of fiscal slippages in the run-up to parliamentary elections last year.
A key goal of the new programme is fiscal consolidation: The budget deficit is planned to go down from 3.7% of GDP in 2017 to 2.8% of GDP by 2020. At the same time, public investment is to be increased at the expense of current spending, with a positive impact on long-term economic growth. The National Bank of Georgia (NBG) is to continue its policy of inflation targeting and exchange rate flexibility. Furthermore, the programme secures the NBG’s role as the banking supervisor and foresees a range of measures for increasing the soundness of the banking system. Structural reforms also play a key role in the new programme. The education system is to be reformed and the conditions for attracting FDI are to be improved. Furthermore, the introduction of a second pillar in the pension system aims at further developing capital markets. All in all, the new IMF programme is good news for the country. At the same time, there is a lot to be done beyond the programme. This applies especially to agriculture and light industry, where significant potential cannot be utilised because of structural issues. As a result, economic growth remains unbalanced, with a bias towards services such as tourism. Thus, economic policy must go beyond implementingthe IMF programme.
