IMF Forecasts 6% Growth of Georgian Economy in 2013
27 December, 2012
IMF Forecasts 6% Growth of Georgian Economy in 2013
Georgian economy may grow by 6% by 2013, the mission of the International Monetary Fund (IMF), visiting Georgia from November 27 to December 12, 2012, forecasted. For 2013, the mission projects that Georgian GDP growth could reach 6%. This forecast is subject to risks. On the upside, there is the possibility of increased trade with Russia and of new sources of foreign investment. However, if the current uncertainty associated with the elections and the political transition persists or demand from trading
partners falters, then growth could be lower. Strong domestic policies and communication are needed to instill confidence and to reassure markets that the new government is committed to prudent macroeconomic policies and further enhancing Georgia’s business-friendly environment.
“The draft 2013 budget is socially oriented yet prudent. It increases social spending to protect the most vulnerable, while continuing with the path of fiscal consolidation. The fiscal deficit is projected to decline to 2.8 percent of GDP in 2013. This will facilitate external adjustment and create room for countercyclical fiscal policy. This is consistent with the medium-term strategy to bring the deficit down to about 1? percent of GDP by 2016 and should keep Georgia’s government’s debt-to-GDP ratio on a firm downward path,” Mark Griffiths, IMF Mission Chief for Georgia, said on December 18, 2012.
According to him, Georgia’s high current account deficit is a source of vulnerability and its reduction is a key macroeconomic challenge. The authorities plan to pursue a reduction in the current account deficit in 2013 and beyond through fiscal consolidation, a more flexible exchange rate, and structural reforms to improve Georgia’s competitiveness. As a result, the current account deficit is projected to fall to 10 percent of GDP in 2013 from 12.7 percent in 2012.
To insure smooth monetary policy dedicated to price stability and the need to maintain a comfortable level of international reserves as well as to continue safeguarding financial stability, the IMF recommends Georgian government reaffirming the independence of Georgian central bank.
This year IMF mission expects Georgian GDP to reach 7% of growth despite some signs that growth have eased recently, reflecting lower growth in trading partners, some slowdown in foreign direct investment, and recent political uncertainties.
“Inflation has remained very low in 2012 due to the earlier nominal appreciation of the Lari against currencies of Georgia’s main trading partners, and declines in food prices over the last 12 months. As the impact of these temporary factors wears off, the mission projects that inflation will increase from 0.5 percent in November to 4 percent by end-2013, and gradually move toward the medium term inflation objective of the National Bank of Georgia. The mission considers that the monetary policy stance, including the recent cut in official interest rates, is broadly appropriate and consistent with the projected rise in inflation,” Griffiths said.
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