IMF satisfied with NBG policy
Inflation is projected to remain near the 3 percent target, and the
current account deficit to stabilize around 5 percent of GDP. Reserves
are projected to improve gradually, supported by opportunistic foreign
exchange (FX) purchases and a recovery in foreign direct investment
(FDI). The external position in 2024 was broadly in line with the
level implied by fundamentals and desirable policies.Risks to the
outlook are broadly balanced, amid high global uncertainty and
political tensions. A resolution of the war in Ukraine may reverse
some gains from migration and transit trade, but greater regional
stability and reconstruction could offset these effects. Direct
exposure to global trade tensions is limited, given Georgia’s low
export share to the U.S. and exemptions for key products. However,
indirect effects from weaker investor sentiment, slower trading
partner growth, or supply chain disruptions could weigh on exports and
raise import costs. Georgia might benefit from lower oil prices and
increased trade diversion. Domestically, heightened political
uncertainty and potential sanctions could dampen FDI, tourism, and
pressure the lari. Georgia’s fiscal and financial buffers would help
cushion adverse shocks.The National Bank of Georgia (NBG) should
maintain a broadly neutral policy stance while remaining flexible and
data driven. With inflation near target, the policy rate close to
neutral, and demand pressures easing, the current stance is
appropriate. However, heightened global uncertainty and rising
domestic food prices warrant a cautious approach to further easing.
Opportunistic reserve accumulation—while preserving exchange rate
flexibility—should be prioritized. While recent FX interventions may
have mitigated market disorder, the NBG should avoid actions that
could undermine policy transmission and credibility, such as sustained
deviations between interbank and policy rates. Clearer communication
on the balance of risks and policy rationale would enhance
transparency and reinforce the effectiveness of the monetary policy
framework.Strengthening NBG governance and independence remains an
important priority. There has been progress on implementing past
recommendations, including filling board vacancies and appointing a
governor. However, proposed amendments to enhance governance and
financial autonomy in the NBG Law remain outstanding. Reforms should
ensure a non-executive board majority, limit discretionary financial
transfers to the government, further clarify succession rules for the
governor, and strengthen board member qualifications. Adopting a
collegial decision-making model would further enhance
governance.Fiscal policy is well calibrated, and efforts should focus
on strengthening revenue mobilization and improving spending
efficiency. Public debt is at prudent levels, and a neutral
medium-term fiscal stance, with deficits below 2.5 percent of GDP,
would help stabilize the debt ratio well below the fiscal rule
ceiling. Revenue mobilization should be advanced through tax policy
and administration reforms that expand the tax base and streamline tax
expenditures, based on a strengthened medium-term revenue strategy
that clearly outlines planned reforms, implementation timelines, and
expected yields. Spending efficiency can be enhanced through better
implementation of public investment management processes and spending
reviews. Social assistance should be better targeted to the most
vulnerable households, alongside efforts to improve the public works
program and employment incentives.Advancing SOE reform is essential to
enhance performance, governance, and oversight to contain fiscal
risks. A strong oversight role of the Ministry of Finance must be
ensured. The authorities should move expeditiously to develop and
implement a reform roadmap. Key objectives should include separating
the state’s shareholder, regulatory, and policy functions to avoid
conflicts of interest and strengthening corporate governance.The
financial sector is sound, and reforms have advanced, but further
steps are needed to strengthen resilience and address evolving risks.
Sustained efforts are needed to further reduce dollarization, along
with continued monitoring of rapid consumer loan growth and lari
funding pressures. Enhancing macroprudential and crisis management
frameworks is essential to mitigate risks from systemic banks.
Priority should be given to fully operationalizing the resolution
framework and strengthening deposit insurance, including by resolving
remaining legal and operational issues. Establishing an effective
supervisory framework for virtual asset service providers and
developing a consolidated supervision framework are key priorities,
given the expansion of cross-border and nonbank activities.
Competition in financial services should be improved, including
through open banking.Sustained structural reform is essential to
support inclusive, job-rich growth and raise Georgia’s growth
potential. Key priorities include addressing high structural
unemployment, low agricultural productivity, and skill gaps through
improved vocational training, teacher quality, and targeted
agricultural support. Harnessing the benefits of emigration will
require promoting return migration, leveraging remittances, and
attracting foreign talent. Continued infrastructure investment and
regional integration are needed to reduce transport and logistics
costs and boost competitiveness. While Georgia outperforms peers on
many governance indicators, recent backsliding underscores the need to
reinforce judicial independence, empower the Anti-Corruption Bureau,
and ensure effective enforcement of asset declaration reforms.Staff
recommend that the next Article IV consultation take place on the
standard 12-month cycle.
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