The International Monetary Fund (IMF) has dramatically increased its forecast for Georgian growth from 3.2% to 9% for this year as “expected negative effects of the war in Ukraine have not materialised so far”.

At the end of a mission to Georgia from September 8-14, the IMF issued a press release on September 15 that reported that, “despite a challenging external environment, the Georgian economy is set to achieve strong growth and buoyant fiscal revenues this year”.

James John, leader of the IMF team, based the huge growth revision on a faster-than-expected recovery of tourism, a surge in inbound money transfers, and immigration-related flows that have helped strengthen the external position and sustain domestic demand.

However, he also urged caution, saying: “Uncertainty is unusually high, and there are notable downside risks including due to a sharper slowdown in major trading partners, tighter global financial conditions, possible weakening of tourism and other external inflows, and sustained high commodity prices. This difficult environment calls for maintaining prudent macroeconomic policies, notably exchange rate flexibility and a build-up of fiscal and foreign exchange buffers while ensuring inflation expectations remain well-anchored.”

Although headline inflation has begun to decelerate, it remains well above the National Bank of Georgia (NBG) target, the IMF pointed out.

It said that the NBG had used the fact that external flows were more favourable than expected to build external buffers by purchasing foreign exchange reserves. It advised that the NBG should continue to carefully assess inflation dynamics and be ready to raise interest rates further if there are signs of inflation becoming more broad-based or entrenched.

The IMF visit assessed reforms in state-owned enterprise governance, public investment management, and progress in developing a support scheme for renewable power generation. It said that successful implementation of these reforms would limit fiscal risks and enhance the economy’s resilience over the medium term.

It also highlighted that successful implementation of fiscal structural reforms and continued vigilance against inflation would enhance the resilience of the Georgian economy over the medium-term. 

The execution of the 2022 budget appears on track and revenue collection is higher than expected, it said, but saving additional revenue would strengthen fiscal cushions and help contain inflation pressures. The IMF said it was important to ensure compliance with the fiscal rule, in line with the path envisaged under Georgia’s IMF-supported programme.

In June, the executive board of the IMF approved a $280mn stand by arrangement for Georgia, a programme that the government sees as precautionary.