Georgia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Georgia

GEORGIA IMFCountryReportNo.24/135 May2024 2024ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORGEORGIA UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2024ArticleIVconsultationwithGeorgia,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsMay13,2024considerationofthestaffreportthatconcludedtheArticleIVconsultationwithGeorgia. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonMay13,2024,followingdiscussionsthatendedonMarch18,2024,withtheofficialsofGeorgiaoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonApril29,2024. AnInformationalAnnexpreparedbytheIMFstaff. AStatementbytheExecutiveDirectorforGeorgia.Thedocumentslistedbelowwillbeseparatelyreleased. SelectedIssues TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/181 IMFExecutiveBoardConcludes2024ArticleIVConsultationwithGeorgia FORIMMEDIATERELEASE Washington,DC–May13,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultationwithGeorgia.1 FinancialinflowstriggeredbyRussia’swarinUkrainecontinuetomoderatebutremainabovepre-warlevels,supportingapositivemacroeconomicoutlook.In2024,growthisexpectedtoeasebutremainabovetrend,inflationisexpectedtopick-upasmonetarypolicycontinuestonormalize,andthecurrentaccountdeficitisexpectedtowidenfromhistoriclows.Overthemediumterm,growthwouldconvergetoitspotentialrateof5percent,inflationtotheNationalBankofGeorgia’s(NBG)3percenttarget,andthecurrentaccountdeficitto5.5percentofGDP,supportedbycontinuedimprovementsinservicesexports. Riskstotheoutlookaretiltedtothedownside.Areversalofwar-relatedmigrantandfinancialinflowsandintensificationofsanctionsthataffectGeorgiaandgeo-economicfragmentationremainkeydownsiderisks.Replenishedfiscalandreservebuffers,aswellasabundantbankcapitalandFXliquiditywouldmitigatesuchrisks.AlossofreformmomentumbeforetheOctoberParliamentaryelectionsandgrowingconcernsaboutgovernancealsoposedownsiderisks.Ontheupside,EUcandidatestatuscouldsendapositivesignal,includingforinvestments,ifreformsgainimpetustomovetheaccessionprocessforward. Theauthoritieshavepursuedprudentpoliciestosecuremacroeconomicandfinancialstability.TheNBGhasmaintainedatightmonetarypolicystance,normalizingthepolicyrategradually,whileusingmacroprudentialmeasurestoaddresssystemicrisks.Despitesignificantforeignexchangepurchases,reservesfellbelowtheIMF’sadequacymetric.ThereremaingapsintheNBGLawregardingNBGgovernanceandindependence.Adequatebuffershavebeenmaintainedunderthefiscalrulesandgoodprogresshasbeenachievedinevaluatingtaxexpendituresandstrengtheningpublicinvestmentmanagement.ProgresshasbeenslowondevelopingaMedium-TermRevenueStrategytobuildspaceforspendingprioritiesandreformingtheSOEstolimittheirfiscalrisks. 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. Theauthoritieshavetakensignificantstepstoaddressentrenchedhighunemploymentanddiversifytheeconomy,includingbypursuingtradeagreementsandinfrastructureinvestments.Challengesremaininimprovingthequalityofeducationandproductivity,particularlyintheagriculturalsector,aswellasinbolsteringthejudicialsystemandtheanti-corruptionauthoritytostrengthengovernance. ExecutiveBoardAssessment2 ExecutiveDirectorsagreedwiththethrustofthestaffappraisal.TheywelcomedGeorgia’sresilienceinthefaceofmultipleshocks.Whilenotingthecontinuedstrongmacroeconomicperformance,Directorshighlightedthattheglobalenvironmentishighlyuncertainandthattheoutlookissubjecttosignificantdownsiderisks.Theycalledforcontinuedprudentpoliciestostrengthenresilienceandstructuralreformstoboostpotentialgrowth,supportmoreinclusive,jobrichgrowth,andensureprogresstowardEUaccession.DirectorsunderscoredtheimportanceofcontinuedFundengagementtosupportthesegoals. Directorssupportedtheauthorities’plansforcontinuedmodestmediumtermfiscaladjustmenttoensuresufficientbuffersunderthefiscalrule,whilecreatingroomforsocialandinfrastructurespending.Theyagreedthattheadjustmentshouldbeunderpinnedbyamedium-termrevenuestrategyfocusedonstreamlinedtaxexpendituresandimprovedrevenueadministration,alongwithenhancedspendingprioritizationandefficiency.Notingtheimportanceof