Georgian authorities’ hopes for restoration of International Monetary Fund’s (IMF) programs increased after the IMF team led by Paulo Neuhaus, Assistant Director in the Middle East and Central Asia Department, concluded its recent mission to Georgia on February 16.
The team, which held talks with the Georgian President, the Prime Minister, the Ministers of Finance and Economy, as well as with the President of the National Bank, reviewed recent economic developments and discussed a new Fund-supported economic program for 2004-06.
Last August, when the Georgia’s previous authorities failed to meet the Fund’s recommendations and curb the corruption, the IMF suspended program, thus Georgia was deprived of a stream of funding into cash-stripped budget.
The mission noted “the sharp decline in revenue collection in late 2003 had been stemmed.” According to the press-release of the IMF Tbilisi office, the mission also welcomed the authorities’ “progress in slowing the accumulation of new arrears and on becoming current on social and wage payments early in 2004.”
Georgian Finance Minister Zurab Noghaideli expressed hope on February 16 that the IMF would restore its program in Georgia that would pave the way for receiving of $30 million loan from the Fund.
However, the mission urged the government to take quickly a number of actions that would allow the government’s economic program to be submitted to the IMF Executive Board for discussion in spring 2004.
“These include the adoption by parliament of a sound 2004 budget bill, measures to strengthen tax administration, particularly over excisable products, preparation of an effective customs reform plan, and legislative changes to ensure that Georgia’s anti-money laundering legislation becomes fully effective,” the IMF press statement reads.
Georgia has not passed the 2004 budget so far because of the political turmoil of late last year. Finance Minister Zurab Nogaideli has recently outlined the main provisions of the draft budget, which set revenues at 1.773 billion Lari ($805 million), including 1.52 billion Lari in taxes, and expenditures at 1.93 billion Lari, resulting in a 157 million Lari deficit. Finance Minister says it is planned to repay 45 million Lari in credits, to pay all pensions and wages arrears, and to raise teachers’ salaries by 35 percent.
The Fund estimated the provisions of the budget as “ambitious.” The IMF mission “urged the authorities to persevere with reforming the Ministry of Finance and the tax and customs departments so as to help achieve their ambitious revenue plans for 2004.”
The budget will increase at the expense of foreign grants. The Georgian government expects to receive GEL 167 million as grants in 2004. This sum includes those grants, which were not received in 2003.
The mission also urged the authorities to move quickly to develop in cooperation with donors a comprehensive business plan for the rehabilitation of the electricity and gas sectors, in order to ensure more rational use of resources by these sectors and reduce the risk of a systemic collapse.
Restoration of the IMF program in Georgia would enable the country to pave the way for a rescheduling of Georgia’s obligations to the Paris Club. Georgia’s foreign debt amounts $1,7 billion.
“It is very important that the restoration of the IMF program would a signal for other organizations for implementation of investment programs in Georgia,” Deputy Finance Minister Nodar Khaduri told Civil Georgia.
Experts suggest that change of IMF’s position towards Georgia is largely caused by the change of power in the country. “We have a real and unique chance to restore the IMF programs and “the rose revolution” has greatly contributed to it. If we lose this chance, this will occur through the fault of our government,” Niko Orvelashvili, an economic expert told Civil Georgia said.
However, the new authorities say that they do not intend “to follow the Funds recommendations blindly.”
Georgian President Mikheil Saakashvili expressed support on February 6 to continuation of Georgia’s cooperation with the IMF, however added that Georgia should itself define the economic priorities.
“We should not blindly follow all the recommendations given by the IFM, or foreign experts if these recommendations are against our economic policy. We only need those recommendations, which are necessary for Georgia’s economy,” President Saakashvili said at a news briefing on February 6.
Many Georgian experts share new President’s position regarding the relations with the Fund. “The Georgian government should become a real partner of IMF. The authorities should be able to express an opposite opinion. Previously this was never done,” Niko Orvelashvili told Civil Georgia.
The IMF mission gave a positive assessment to the overall economic growth in Georgia, which was mainly caused by the construction of the Baku-Tbilisi-Ceyhan oil pipeline.
“The mission was encouraged by the robust economic growth in 2003, driven by construction of the Baku-Ceyhan pipeline, a boom in residential construction, and recovery in agriculture and some industrial sectors,” the IMF press statement reads.
Georgian authorities vow that the economic growth would further increase in 2004. Newly appointed Economy Minister Irakli Rekhviashvili said that Georgia’s economy will grow faster in 2004 than last year at more than 8%, and inflation is set to fall below 7.