FROM THE REDACTION
An International Monetary Fund mission, headed by Mr. David Owen, Deputy Director of the Middle East and Central Asia Department, visited Georgia on February 29 – March 7 to evaluate the current economic situation in the country and the prospects for 2008.
The members of the mission conducted meetings with Georgian authorities as well as representatives of the private sector. The purpose of the visit was to discuss recent economic developments in the country.
The mission noted the remarkable growth of the Georgian economy in 2007 with real GDP growth exceeding 12 percent. This growth was achieved mainly due to private capital inflow in the country, which constituted over 20 percent of the GDP and included a significant share of foreign direct investments (FDI). Notwithstanding the difficulty of foreseeing the inflow of private capital, the current trends suggest that this tendency will continue. Accordingly, the mission projects real growth at about nine percent in 2008.
The end-of-period inflation in Georgia equaled 11 percent in 2007, which exceeded the authorities’ target. The increased inflation was partly the result of a rise in food and oil prices on the world market but also reflected the loose monetary stance that prevailed during most of 2007. The mission welcomes the goal of the Georgian government to reduce inflation to eight percent by the end of 2008. It also supports the government objectives to achieve moderate growth of monetary indicators, keep limited inflation, and attain more flexible currency exchange rates.
One of the most important tasks for the Georgian government in 2008 will be realizing a plan for the implementation of a stricter fiscal policy. Continued improvements in tax and customs administration should allow revenues to be maintained even as some tax rates are reduced. According to the assessment of the mission, it is necessary to resist new government expenditure initiatives in order to maintain macroeconomic stability.
“The broad intent of the proposed macroeconomic and financial reform package now before parliament is welcome. In particular, the mission supports the efforts to strengthen financial sector supervision and combat money laundering. The introduction of well-managed and transparent Future Generations and Stable Development Funds could be a useful tool for restraining budgetary pressures,” reads the IMF mission statement.
The mission understands the authorities’ interest in accessing non-concessional sources of external financing. Nonetheless, in the absence of any financing need in the context of the 2008 budget, it is important that the uses of such financing be clearly specified, to allow a careful assessment of the benefits and the costs.
In addition, the mission stressed the importance of avoiding any erosion of the central bank’s independence. In this regard, the mission believes that requirements for frequent parliamentary approval of monetary policy goals and instruments, combined with new provisions for the automatic dismissal of the President of the National Bank of Georgia for missing the inflation target, would weaken the operations of the central bank.
The mission’s next visit is planned in June, 2008.