Georgia weathered multiple shocks since COVID: IMF

WASHINGTON, DC: Georgia has weathered well multiple shocks since the COVID-19 pandemic, supported by increased tourism, transit trade, and financial inflows linked to Russia’s war in Ukraine and swift policy responses, the International Monetary Fund said on Monday.

Financial inflows triggered by the war in Ukraine have moderated but remain above pre-war levels, supporting continued strong economic performance. Growth remained above trend at 7.5 percent in 2023, driven largely by tourism, trade, construction, and financial services as well as continued strong investments. Growth is expected to ease to 5.7 percent in 2024, with consumption playing a larger role supported by strong real wage growth and employment.

In the medium term, growth is expected to converge to its potential rate of around 5 percent.

An IMF mission led by Matthew Gaertner conducted discussions for the 2024 Article IV consultation with Georgia during March 6-18 in Tbilisi. At the end of the visit, the mission issued a statement summarizing its main conclusions and recommendations. According to the report, priorities for Georgia include reforming state-owned enterprises (SOEs) to limit their fiscal risks and enhance their efficiency; strengthening the independence of the National Bank of Georgia (NBG); and improving education, infrastructure, and governance to raise productivity and address entrenched high unemployment and economic disparities.

Inflation fell sharply during 2023 and closed the year at 0.4 percent, helped by a strong lari, lower commodity prices, and a tight monetary policy stance. In response, the NBG has lowered its policy rate by a cumulative 275 basis points since May 2023 to 8.25 percent in March. Inflation is expected to reach 4 percent by the end of 2024, as the impact of the favorable external factors from last year dissipates and the restrictiveness of the monetary policy stance is

unwound. Inflation is expected to converge back to target in the medium term, the report said.

The current account deficit is estimated to have remained at a historic low of 4.5 percent of GDP in 2023, with lower remittances from Russia offset by an improved goods trade deficit helped by lower import prices. Gross international reserves stood at $5 billion at end-2023, covering just above 3 months of imports. The current account deficit is expected to widen in 2024 to 6 percent of GDP as remittances continue to normalize and imports pick up. In the medium term, it should converge to 5.5 percent of GDP as the services trade balance continues to improve.

The fiscal deficit in 2023 (including budget lending) was 2.4 percent of GDP, compared to a budgeted deficit of 2.8 percent, reflecting overperformance in revenues. The 2024 budget targets a deficit of 2.5 percent of GDP, with increased revenues from CIT for banks and new gambling taxes financing increased expenditures, including on higher wages, social benefits, and capital investments. Public debt is expected to remain below 40 percent of GDP in 2024 and over the medium term, the statement added.