Georgia : Seventh Review Under the Extended Fund Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Georgia

IMF Country Report No. 20/322

GEORGIA

SEVENTH REVIEW UNDER THE EXTENDED FUND

December 2020 FACILITY ARRANGEMENT AND REQUEST FOR

MODIFICATION OF PERFORMANCE CRITERIA-PRESS

RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GEORGIA

In the context of the Staff Report for the Seventh Review Under the Extended Fund Facility Arrangement and Request for Modification of Performance Criteria, the following documents have been released and are included in this package:

• A Press Release.
• The Staff Report prepared by a staff team of the IMF for the Executive Board's consideration on December 16, 2020, following discussions that ended on November 9, 2020 with the officials of Georgia on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on December 1, 2020.
• A Statement by the Executive Director for Georgia.

The IMF's transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities' policy intentions in published staff reports and other documents.

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PR20/377

IMF Executive Board Completes the Seventh Review under the

Extended Fund Facility for Georgia

FOR IMMEDIATE RELEASE

• The IMF Executive Board approved a disbursement of $113.9 million to help Georgia meet balance of payments needs stemming from the COVID-19 shock.
• The authorities have taken appropriate steps to alleviate the adverse economic and social impact of the shock given the pronounced economic slowdown.
• Macroeconomic policy discipline and decisive implementation of structural reforms will be critical to support the recovery and limit scarring from the COVID-19 shock.

Washington, DC - December 16, 2020: The Executive Board of the International Monetary Fund (IMF) completed today the Seventh Review of Georgia's economic reform program supported by a four-year extended arrangement under the Extended Fund Facility (EFF).

The completion of the review will release SDR79 million (about $113.9 million) to help Georgia meet balance of payments needs stemming from the COVID-19 shock. Total disbursements so far under the arrangement amount to SDR406 million (about $585.4 million).

Following the Executive Board discussion, Mr. Tao Zhang, IMF Deputy Managing Director and Chair, made the following statement:

"Georgia faces a pronounced economic slowdown due to the COVID-19 pandemic. Despite the successful containment of the first wave of the pandemic, the recent rise in cases has required new measures that could weaken the recovery. Risks are large and mostly to the downside.

"The National Bank of Georgia has appropriately maintained a moderately tight monetary stance to anchor inflation expectations, while safeguarding exchange rate flexibility. Inflation pressures have abated as the output gap widened and the nominal effective exchange rate stabilized. The tight monetary policy stance and continued foreign-exchange intervention may need to be sustained to prevent disorderly market conditions and bring inflation towards the 3- percent target. Macroeconomic policy discipline and donor support is expected to keep foreign exchange reserves at an adequate level. The proactive monitoring of financial risks and actions to preserve banks' capital until the economy rebounds would support the recovery.

"The fiscal response to the pandemic has helped alleviate its adverse economic and social impact, with higher healthcare spending, targeted and temporary support to households and businesses, and sustained public investment. The 2021 Budget will further support the economic recovery while starting fiscal consolidation consistent with Georgia's fiscal rule. The authorities' proactive monitoring of fiscal risks stemming from power purchase agreements and state-owned enterprises are expected to help safeguard debt sustainability. Plans to reform state-owned enterprises will help to improve the efficiency of the public sector.

"Decisive implementation of structural reforms is critical to support the recovery and limit scarring from the COVID-19 shock. Mobilizing investment, advancing education reform, implementing the new insolvency framework, developing the local capital market, and judiciary

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reforms would further improve the business environment and support private sector-led growth.

"Performance under the IMF-supported program remains satisfactory. The EFF arrangement has helped support the authorities' policies to limit the economic impact of the pandemic."

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