IMF's Georgian program helps reduce country's fiscal imbalances
The IMF said in a statement that the program also helped maintain the independence of the central bank following the 2012-13 political transition and improved its framework for targeting inflation.
"However, over time it proved increasingly difficult to reconcile the program's fiscal objectives with the new government's policies of increasing social spending, especially after the economy slowed and revenues fell short in 2013," the IMF said. "Also, despite the progress achieved under the program, macroeconomic challenges remain. The current account deficit and external debt are high, leaving the economy susceptible to shocks. Strong and inclusive growth is needed to reduce widespread poverty and high unemployment.
To meet the challenges, the Georgian government has requested a new three-year Stand-by Arrangement.
"The program will facilitate Georgia's external adjustment, reduce key macroeconomic vulnerabilities, rebuild policy buffers, and support growth. Program policies," the IMF said. "In 2014, the program balances supporting domestic demand with the need to safeguard external stability. To reduce the output gap, fiscal policy provides a measured stimulus, while monetary policy remains accommodative. However, the authorities will tighten policies and allow the exchange rate to adjust if balance of payments pressures were to intensify."
From 2015, the government will reduce the fiscal deficit and rely on revenue by broadening the tax base and controlling expenditure while maintaining social spending.
"Monetary policy will aim at price stability through improved inflation targeting," the IMF said. "The program will seek to rebuild international reserves while encouraging greater exchange rate flexibility. Strengthening of the financial sector will continue, helped by the recommendations of the recent FSAP mission. The program also aims to contain risks from quasi-fiscal activities and support improvements in tax administration, and will complement the authorities' reforms to strengthen the business environment, improve education and training, create jobs and reduce poverty and inequality."