Economy rebounds but inflation poses risk
05 May, 2011
Economy rebounds but inflation poses risk

Georgia has to handle three key challenges this year including inflation, social tension and bad credit portfolio of banks, the International Monetary Fund said.
Countries in the Caucasus and Central Asia (CCA) are undergoing a second year of steady growth following the crisis, but the region must tackle inflation and other issues if it is to sustain the recovery, the IMF says in its latest forecast for the region aired on April 28, 2011.
The Regional Economic Outlook for Middle

East and Central Asia indicates that the region’s post-crisis recovery took hold in 2010, with growth registering 6,5 percent, up from 3,5 percent in 2009. This unexpectedly strong rebound was driven by commodity exports and public investment, with oil and gas exporters enjoying particularly strong growth.
According to the report, in 2011, as oil and gas production growth slows, the region’s expansion is expected to moderate to 5,75  percent.
Georgia likewise the entire region faces to control three challenges this year including the inflation, social tension and bad credit portfolio of banks, David Owen, IMF Middle East and Central Asia Department Deputy Director, accentuated during the presentation event of the Regional Economic Outlook for Middle East and Central Asia on April 28, 2011 in Tbilisi.
“To sustain the recovery, policymakers in the Caucasus and Central Asia will need to address rising inflation, respond to social pressures arising from high food prices without threatening fiscal stability, and restore the health of banking systems,” Owen said.
The two key challenges are inflation control coupled with the drop in the fiscal deficit however for the entire region, Owen stressed. There was a 9% fiscal deficit in Georgia during the global crisis that defined increase in expenses in 2009. The deficit is corrected at the moment. It was cut to 7% last year and is forecasted to drop to 4.3% this year.
Drop in fiscal deficit is necessary to avoid increase of foreign debt volume so as to create default problems. Georgia needs a sustainable economic growth, quick recovery of unemployment picture and the equilibrium rights so as to enable socially vulnerable people to enjoy the benefits of the economic growth, Owen accentuated.
The IMF projects 5.5% of economic growth for Georgia this year that lags behind the 6% of growth in 2010. Georgian government meantime appears more optimistic. It changed the 4.5% of GDP growth projection into 6-7% this year that seems unrealistic to economic analysts.
Moreover the IMF fears the price-hike on oil and food may jack prices on consumer goods up, and the inflation rate may go as high as 15-18% this year. To this end Owen advises Georgian government to be specifically focused on inflation pressure control.
He accentuated that National Bank of Georgia (NBG) has always been focused on inflation pressure but this time it ought prevent inflation and price-hike to rush to uncontrolled level. Owen presumes that prices can affect significant part of population for the lack of social protection and pension system in the country. The risk seems more eminent for the inflation rate already hit 14%.

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