IMF reaches agreement with authorities in Georgia

By Natalia Kochiashvili

Friday, April 17

The head of the IMF mission in Georgia: “Thanks to reasonable macroeconomic policies, fiscal and foreign reserves growth, well-funded financial system and significant financial assistance from donors over the past years, Georgia is prepared to face this challenge.”

After the approval of the IMF Board of Executive Directors, about $ 200 million will be immediately available for transfer to the Georgian budget.

The mission of International Monetary Fund (IMF), led by Mercedes Vera-Martin, held talks with the Georgian authorities during the first 2 weeks of April on the completion of the 6th review of the program, supported by the ‘extended financing mechanism.’ Raising the funding of the program was also discussed. After the mission’s 6th review the total disbursement will amount to $ 450 million (155% of Georgia’s quota), the head of IMF mission announced, emphasizing that on the basis of a productive discussion, an agreement was reached between the Georgian government and the IMF mission.

According to Vera-Martin the IMF team recommends increasing the total amount of IMF support by 130 percent of the quota (about $ 375 million) to help fund health and macroeconomic stabilization measures to meet the COVID-19 pandemic needs and will mobilize the help of the international community.

Part of that amount, about $ 200 million will be budgeted to help the country's government address the urgent medical and socio-economic needs. This part of the money will be made available to the country as soon as the program is reviewed by the Board of Executive Directors, approximately in the beginning of May.

Head of the IMF mission also announced that the National Bank of Georgia (NBG) has carried out foreign exchange interventions to reduce exchange rate fluctuations and has taken decisive steps to ensure financial stability, the buffers of capital and liquidity have been released in time to support the economy.

She said that the implementation of structural reforms in the country will help maintain the potential for economic growth and rapid economic recovery. ”The authorities must quickly enact a law on enterprises insolvency,” Vera-Martin added, and pointed out that the basic pension indexation to approve the procedure will improve the real income of pensioners and reduce poverty among the elderly.

As Vera Martin noted, Georgia's economic prospects have deteriorated significantly due to the COVID-19 pandemic. According to her, a 4% drop in real GDP is expected in 2020. In 2021, it is expected to grow by 3%. This time the uncertainty surrounding the forecast is higher than under normal circumstances.

Head of the mission remarked that reducing trade, halting tourism and reducing remittances will increase the current account deficit to 11? % of GDP in 2020. Due to the increased caution of global investors, it is likely to reduce net private inflows and delay investments as well. The fiscal deficits will temporarily rise to 8? %of GDP, as revenues are declining and spending is rising to contain the virus and reduce the social and economic impact of the pandemic.

As she noted, the COVID-19 pandemic has raised the need to finance the balance of payments by about $ 1.6 billion by 2020-2021 and this need will be funded with the help of the IMF and other donors.

Giorgi Gakharia, the Prime Minister of Georgia announced this week that Georgia will be the first to agree on an updated extended program with the IMF, which is very important. PM emphasized that as a result of successful cooperation with international donor organizations, international aid of approximately $ 3 billion will be available by the end of the year.

2020 will be the worst year for the global economy after the Great Depression, according to the IMF, which estimates that the global economy will shrink by 3 % as a result of the pandemic. According to the same forecast, growth of 5.8 % is expected in 2021. However, the prospect of growth is still vague and unpredictable.