- The completion of the eighth review concludes the EFF supported program which has helped strengthen the economy’s resilience to shocks, as underscored by Georgia’s ability to successfully navigate the fallout from the COVID-19 pandemic.
- The Georgian economy is expected to resume growth from the second quarter of 2021 onwards and output is projected to expand by 3.5 percent this year.
- Continued prudent macroeconomic policies and implementation of structural reforms would help ensure a durable and inclusive recovery.
On April 9, the Executive Board of the International Monetary Fund (IMF) completed on a lapse of time basis  the Eighth Review of Georgia’s economic reform program supported by a four-year extended arrangement under the Extended Fund Facility (EFF ). This is the last review under the arrangement and its completion will release SDR 78 million (about $111 million), bringing total disbursements to SDR 484 million (about $687 million).
Repeated restrictions on movement and economic activity took a toll on economic growth with output contracting by 6.2 percent in 2020. The authorities’ policy response helped limit the human toll of the pandemic and rightly focused on protecting the vulnerable. After successfully navigating the second wave of COVID-19 and commencing vaccinations, Georgia is at a potential turning point in overcoming the fallout of the pandemic. The next steps are to decisively bring COVID-19 under control, secure the recovery, and maintain macroeconomic policy discipline in a challenging environment. Under the baseline, a strong recovery is expected to commence in the second quarter of 2021, and output is expected to expand by 3.5 percent for the year.
The 2021 budget appropriately provides additional targeted support to vulnerable households and businesses to help cope with the pandemic. If more fiscal support is needed due to a new wave of the pandemic, reprioritizing spending should be the first line of defense. Increased public debt and sizable contingent liabilities make strict adherence to the fiscal rule especially important to preserve credibility. Proactive monitoring of fiscal risks remains essential, and advancing state-owned enterprise reform would help control and mitigate those risks.
Due to consecutive shocks related to concerns over travel restrictions in the second half of 2019, the outbreak of the pandemic in early 2020, and recent spillovers of trading partner currency volatility, the lari has come under repeated bouts of pressure. The NBG remains appropriately focused on achieving its inflation target which is a cornerstone of Georgia’s macroeconomic policy framework. The most recent policy rate increase responds to elevated inflation expectations following a somewhat prolonged period of inflation exceeding its target. Further increases in the policy rate may be needed if external pressures persist. Overall, the inflation-targeting framework, combined with the floating exchange rate regime, continues to serve Georgia well and foreign exchange intervention should remain aimed at preventing disorderly market conditions.
The financial sector remained profitable in 2020 and the banking system managed to maintain sufficient capital buffers to withstand the COVID-19 shock, reflecting the effectiveness of the supervisory regime before the crisis. Looking ahead, supervisors should aim to calibrate policies that balance the need to support the recovery and to proactively deal with the increase in non-performing loans. The new bank resolution framework will further strengthen financial resilience.
In addition to prudent macroeconomic policies, advancing the structural reform agenda will be essential to sustain a durable and inclusive recovery. The near-term priorities are operationalizing the insolvency framework to deal with the aftermath of the COVID-19 shock and education reform.
Source: International Monetary fund
In March 2021 the Consumer Price Index increased by 4.2 percent compared to the previous month, while the annual inflation rate amounted to 7.2 percent.
With regard to the annual core inflation, the prices increased by 6.9 percent, while the annual core inflation without tobacco2 amounted to 6.6 percent.
The following table shows percentage changes in prices for the commodity groups of the consumer basket as well as the relevant contributions to the overall monthly inflation rate.
The monthly inflation rate was mainly influenced by price changes for the following groups:
- Housing, water, electricity, gas, and other fuels: the prices for the group increased by 36.1 percent, which contributed 2.97 percentage points to the monthly inflation rate. The prices were higher for the following subgroups: water supply and miscellaneous services relating to the dwelling (58.0 percent) and electricity, gas, and other fuels (51.4 percent).
- Food and non-alcoholic beverages: the prices in the group increased by 1.5 percent, contributing 0.45 percentage points to the overall monthly inflation rate. The prices were higher for the following subgroups: fruit and grapes (3.8 percent), oils and fats (3.7 percent), sugar, jam, honey, chocolate and confectionery (2.7 percent), meat (2.1 percent), vegetables (1.3 percent), mineral waters, soft drinks, fruit and vegetable juices (1.1 percent);
- Transport: the prices increased by 2.6 percent, contributing 0.34 percentage points to the overall monthly inflation rate. Within the group the prices increased for the operation of personal transport equipment (3.3 percent);
- Health: the prices went up by 3.6 percent, contributing 0.27 percentage points to the overall monthly inflation rate. The prices increased for medical products, appliances, and equipment (6.3 percent) and hospital services (1.8 percent).
Source: National Statistics Office of Georgia
See detailed information: https://www.geostat.ge/media/37579/Inflation-Rate-in-Georgia%2C-March-2021.pdf
Estimated real Gross Domestic Product (GDP) declined by 5.1 percent in February 2021 YoY and by 8.3 percent in January-February of 2021 YoY.
In February 2021 the estimated real growth compared to the same period of the previous year was posted negative in the following activities: Construction, Accommodation service activities, Arts, entertainment and recreation, Transportation and storage, Real estate activities, Manufacturing.
Growth was registered in Financial and Insurance activities, Trade, Water supply; sewerage, waste management activities.
Source: National Statistics Office of Georgia
See detailed information: https://www.geostat.ge/en/single-news/2214/rapid-estimates-of-economic-growth-february-2021