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IMF Sees Continued Growth in Georgia

Thursday, November 23
(TBILISI) -- In its latest article about Georgia, the International Monetary Fund (IMF) said it sees continues economic growth for the small South Caucasus nation.

"Georgia, a country of only 3.7 million people and at the crossroads of western Asia and eastern Europe, is thriving. Its government program to refashion the country as an attractive investment destination has proved successful,” read the article.

The Georgian economy has performed well in recent years, posting a 4.7 percent growth rate for the first eight months of 2017. Credit ratings agency Moody’s upgraded the country’s sovereign rating and exports are booming.

“Tourism is booming, generating 28 percent more revenues than in 2016. Exports have grown by 28 percent, remittance transfers are up by 22 percent compared to last year. In the first two quarters, the private sector posted a five percent growth in job creation”, said Kumsishvili.

To achieve such robust growth, the government worked out a four-pillar reform agenda based on economic reforms, open governance, infrastructure investment, and reforms in education, Georgia’s Economy Minister, Dimitri Kumsishvili, said.

“We noted that the private sector needs more equity, so we changed the corporate income tax model, taxing only distributed earnings. To make up for the loss in budget revenues, we increased indirect taxes, for example, by doubling taxes on fuel, raising the excise tax on tobacco, cars, and gambling. These revenues not only covered the gap created by corporate tax reform, but also created additional fiscal space for higher investments in infrastructure. In addition, we committed to freeze real current expenditures during the next four–five years, which means that savings from current expenditures will be transferred to investments,” said Kumsishvili.

National Bank of Georgia Governor Koba Gvenetadze pointed to Georgia’s banking system and how it responded to the sharp economic slowdown in 2015–2016, that was accompanied by the depreciation of the Georgian lari and other currencies in the Caucasus.

“We responded with a flexible exchange rate, which proved to be a very good way to absorb the shock and to make the economy withstand the difficult times. As a result, the lari depreciated 34 percent against the dollar, but the economy continued to grow by 2.9 percent in 2015 and 2.8 percent in 2016. A cheaper lari stimulated economic activity by encouraging exports; incomes grew, which helped debt payers meet their financial obligations,” said Gvenetadze.

Gvenetadze added that Georgia dealt “proactively” with high dollarization (the ratio of foreign exchange deposits and loans to total deposits and loans) in Georgia. He said that together with IFM experts, Georgia’s economic team developed a 10-point program to reverse this dollarization trend.

“This long-term project already has some early results; for instance, loan dollarization decreased by 9 percentage points, to 56 percent of total loans in 2017. The drop in household dollarization was even larger, at 12 percentage points. Deposit dollarization has also been declining,” said Gvenetadze. (