Georgia: Staff Concluding Statement of the 2025 Article IV Mission

Source: IMF – News in Russian

June 4, 2025

Tbilisi: An International Monetary Fund (IMF) mission led by Mr. Alejandro Hajdenberg conducted discussions for the 2025 Article IV consultation with Georgia from May 21 to June 4, 2025, in Tbilisi. At the end of the visit, Mr. Hajdenberg issued the following statement:

Georgia’s economy has been remarkably resilient despite heightened domestic and geopolitical uncertainty. Growth approached double digits in 2024, is projected at 7.2 percent this year, and is expected to converge to its long-term trend of 5 percent. Inflation has ticked up but remains close to its 3 percent target. Meanwhile, foreign exchange reserves have recovered from last year’s lows and continued fiscal discipline has contributed to a further decline in public debt. However, risks to the outlook are elevated and challenges persist due to still high structural unemployment and income inequality. In this context, the National Bank of Georgia (NBG) should prioritize building additional reserve buffers while monitoring potential financial sector risks. Strengthening NBG’s governance and independence remains central to macroeconomic stability. Fiscal reforms should aim to raise additional revenues to finance development priorities, improve spending efficiency, and contain fiscal risks. Structural reforms should focus on sustaining strong growth and making it more inclusive, including by enhancing labor market opportunities and outcomes.

Recent economic developments, outlook, and risks

Economic activity has remained robust. Real GDP grew by 9.4 percent in 2024 despite domestic political tensions. Growth was driven by consumption, marking a shift from previous years when investment and net exports were the main contributors. Tourism rebounded to pre-Covid levels, while the information and communications technology (ICT) and transport sectors remained key drivers of growth, continuing to benefit from high skilled migrants and transit trade. The unemployment rate continued to decline, albeit remaining structurally high. With strong momentum continuing in the first four months of 2025, growth is projected to moderate slightly to 7.2 percent for this year before converging to its medium-term potential rate of 5 percent.

Inflation has returned to target after undershooting for two years. Headline inflation averaged 1.8 percent over 2023 and 2024 but rose to 3.5 percent year-on-year in May 2025, mainly due to increasing food prices. Core inflation, however, remains subdued, with the NBG keeping the policy rate unchanged at 8 percent since May 2024. Inflation is projected to average 3.4 percent in 2025 and to converge to the NBG’s 3 percent target in 2026 along with easing domestic demand.

The current account deficit narrowed in 2024 to 4.4 percent of GDP, with a similar projection for 2025, but reserve coverage remains below adequate levels. The improvement in 2024 was driven by lower imports, partly reflecting lower oil prices. Foreign direct investment (FDI) declined for the second straight year, in part reflecting the absence of new large greenfield projects. Gross international reserves have fallen from a peak of $5.4 billion in August 2023 to $4.5 billion as of April 2025––equal to 80 percent of the Fund’s Assessment of Reserve Adequacy (ARA) metric. Recent favorable inflows have allowed the NBG to offset the sizeable foreign exchange sales made before the October parliamentary elections.

The fiscal deficit held steady at 2.4 percent of GDP in 2024, despite it being an election year, and is expected to remain unchanged in 2025. Robust tax revenues––supported by strong growth, tax policy measures in the financial and gambling sectors, and improved revenue administration––have helped finance social and capital spending. Amid stronger-than-expected economic activity, the 2025 budget target of 2.5 percent of GDP deficit is well within reach. Public debt, at 36 percent of GDP, has returned to pre-pandemic levels, with an increasing share denominated in local currency. The USD 500 million Eurobond maturing in April 2026 is expected to be rolled over smoothly.

While uncertainty remains exceptionally high, risks to the outlook appear broadly balanced. The direct impact from tariffs imposed by the U.S. is limited as the U.S. accounts for only 2 percent of total exports—mainly ferroalloys, which are exempt. However, the indirect effects of heightened global trade tensions could be more significant. Weaker investor confidence and slower trading partner growth pose negative risks, but Georgia could benefit from lower oil prices and sustained trade diversion through its territory. A resolution of the war in Ukraine could unwind some gains linked to migration and transit trade but increased regional stability and reconstruction in Ukraine could be offsetting positive factors. Persistent domestic political uncertainty and sanctions affecting Georgia could dampen FDI, discourage tourism, and further pressure the lari. Healthy fiscal and financial sector buffers mitigate these risks.

Monetary and exchange policies

The NBG should maintain a broadly neutral policy stance while remaining flexible and data driven to ensure inflation expectations remain anchored. Although wage and employment growth have moderated and business confidence has weakened, heightened global uncertainty warrants caution in considering further policy rate cuts, particularly as the recent increase in domestic food prices may not prove transitory. Should inflationary pressures persist, a tightening of the policy stance may be warranted.

Exchange rate flexibility, opportunistic reserve accumulation, and monetary policy communication should be enhanced. Efforts to rebuild reserve buffers should be sustained while allowing the exchange rate to act as a shock absorber. The NBG should continue to strengthen monetary policy transmission, effectiveness, transparency, and credibility. Communication of monetary policy should be strengthened by clarifying the NBG’s assessment of the balance of risks and how this informs policy decisions.

Strengthening NBG governance and independence remains central to macroeconomic stability. The filling of the board vacancies and the governor position is a welcome first step. Efforts should now focus on amending the NBG law to: (i) ensure a non-executive majority on the NBG’s oversight board, (ii) limit the possibility of discretionary financial transfers to the government, and (iii) clarify and further strengthen [the NBG succession framework and] board member qualification criteria. Moving from a presidential to a collegial decision-making model is also advisable.

Fiscal policy

With public debt at sound levels, maintaining a broadly neutral policy stance over the medium term is appropriate. A fiscal deficit of 2.3–2.5 percent of GDP would help stabilize the debt-to-GDP ratio near its current level. The shift toward domestic debt should proceed carefully, avoiding crowding out the private sector and monitoring borrowing costs and risks linked to a stronger sovereign-bank nexus. While good progress has been made, further tax policy and administration reforms that broaden the tax base and streamline tax expenditures—supported by a stronger medium-term revenue strategy—are needed to secure revenue for spending priorities.  

There is considerable scope to enhance spending efficiency and further strengthen public investment management (PIM). Despite elevated levels of public investment, infrastructure quality remains below that of many emerging market peers, highlighting the need for more effective implementation of PIM processes, building on recent years’ improvements. Spending on education and health could be more efficient, to achieve better outcomes at similar expenditure levels. Spending reviews could help in this regard. Social assistance is relatively generous but targeting could be improved to prioritize the most vulnerable households.

Sustained efforts are needed to manage fiscal risks and increase fiscal transparency. The authorities have taken significant steps in enhancing the Ministry of Finance’s financial oversight of state-owned enterprises (SOEs), and maintaining this momentum will be important. Efforts should focus on legislation that would separate the state’s shareholder, regulatory, and policy functions beyond the energy sector, where implementation has recently taken place, and strengthen the corporate governance of SOEs. The authorities should address gaps in the coverage of fiscal reporting, particularly from non-market SOEs with significant fiscal risks.

Financial sector

Continued vigilance and reforms will help address long-standing and emerging financial sector risks. The banking system remains well capitalized and profitable, and the implementation of the IMF’s 2021 Financial Sector Assessment Program (FSAP) recommendations is nearly complete. Key priorities going forward include enhancing the consolidated supervision of financial groups—particularly non-bank subsidiaries and cross-border activities, operationalizing a fully-fledged bank resolution framework, and improving competition in financial services. The NBG continues to implement its long-term dedollarization policy to support financial stability, and recently raised the FX loan threshold for unhedged borrowers further to GEL 750,000. Nevertheless, the share of unhedged foreign currency bank loans is still high, and the deposit dedollarization trend was interrupted amid heightened political uncertainty. Banks—especially smaller ones—have faced lari funding pressures, and the cost of funding has risen, potentially weighing on profitability. Consumer loans have grown rapidly, while riskier nonbank financing—including foreign currency bond issuances by real estate developers—has increased considerably. Neither risk is assessed to be systemic at this stage, but continued close monitoring is warranted.

Structural reforms

Structural reforms are needed to sustain high growth and make it more inclusive and job rich. Potential growth remains constrained by structurally high long-term and youth unemployment, low educational attainment, infrastructure bottlenecks in the transport and logistics sectors, and low sectoral productivity, especially in agriculture. An aging population, outward migration, and informality pose challenges for the labor market, along with persistent income inequality. Better targeting of agricultural support, improving teacher quality, and expanding vocational training would help raise rural labor force participation and facilitate the integration of workers into the formal economy. Remittances and return migration could be better leveraged to boost productive investments and knowledge transfers from returning migrants. Continued investment in transport and logistics infrastructure, as well as coordination with regional partners to harmonize fees and procedures, are important to support long-term competitiveness. Finally, the authorities should enhance judicial independence and strengthen the autonomy of the Anti-Corruption Bureau to improve the business environment.

The mission team would like to thank the Georgian authorities and other counterparts for their close collaboration, candid and informative discussions, and warm hospitality.

Table 1. Georgia: Selected Economic and Financial Indicators, 2024–28

 

	2024	2025	2026	2027	2028
	Actual Projections
National accounts and prices	(annual percentage change; unless otherwise indicated)
Real GDP	9.4	7.2	5.3	5.0	5.0
Nominal GDP (in billions of laris)	91.9	102.5	111.7	121.5	131.9
Nominal GDP (in billions of U.S. dollars)	33.8	36.7	39.2	41.4	43.6
GDP per capita (in thousands of U.S. dollars)	9.1	9.9	10.6	11.2	11.8
GDP deflator, period average	3.8	4.1	3.5	3.5	3.5
CPI, period average	1.1	3.4	3.1	3.0	3.0
CPI, end-of-period	1.9	3.6	3.0	3.0	3.0
Consolidated government operations	(in percent of GDP)
Revenue and grants	28.0	27.7	27.8	27.7	27.6
o.w. Tax revenue	25.3	25.0	25.6	25.6	25.6
Total Expenditure	30.3	30.0	30.1	29.9	29.8
Current expenditures	22.5	22.6	22.5	22.5	22.5
Net acquisition of nonfinancial assets	7.7	7.4	7.5	7.5	7.3
Net lending/borrowing (GFSM 2001)	-2.3	-2.3	-2.3	-2.3	-2.2
Augmented net lending/borrowing 1/	-2.4	-2.4	-2.4	-2.4	-2.3
Public debt	36.1	34.7	34.1	34.3	34.5
o.w. Foreign-currency denominated	25.2	23.1	22.0	21.7	20.9
Money and credit	(annual percentage change; unless otherwise indicated)
Credit to the private sector	18.5	13.7	9.0	8.7	8.6
In constant exchange rate	17.0	15.5	8.5	7.4	7.3
Broad money	14.5	13.3	11.5	11.3	11.2
Excluding FX deposits	10.4	13.7	11.9	11.7	11.6
Deposit dollarization (in percent of total)	52.7	52.1	51.9	51.7	51.4
Credit dollarization (in percent of total)	42.9	42.5	42.1	41.7	41.3
Credit to GDP (in percent) 2/	66.0	67.4	67.4	67.4	67.4
External sector	(in percent of GDP; unless otherwise indicated)
Current account balance (in billions of US$)	-1.5	-1.6	-1.8	-2.0	-2.1
Current account balance	-4.4	-4.4	-4.6	-4.8	-4.8
Trade balance	-19.2	-18.9	-19.1	-19.2	-19.3
Terms of trade (percent change)	-2.8	-0.2	0.1	-0.3	0.5
Gross international reserves (in billions of US$)	4.4	4.7	4.9	5.5	6.2
In percent of IMF ARA metric 3/	79.6	81.1	82.4	88.0	95.5
In months of next year’s imports	2.7	2.6	2.6	2.7	2.9
Gross external debt	66.8	62.4	58.5	55.9	53.0
Sources: Georgian authorities; and Fund staff estimates.
1/ Augmented Net lending / borrowing = Net lending / borrowing – Budget lending.
2/ Banking sector credit to the private sector.
3/ IMF’s adequacy metric for assessing reserves in emerging markets.

https://www.imf.org/en/News/Articles/2025/06/04/06042025-mcs-georgia-staff-concluding-statement-of-the-2025-article-iv-mission

MIL OSI