IMF cuts Georgia’s economic growth forecast

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Photo: www.thehindu.com

Following the EBRD, Fitch Rating and other international organizations, the International Monetary Fund (IMF) also downgraded Georgia's economic forecast rate. The IMF decreased the estimate of the country's economic growth from 6% to 4%. Moreover, according to the IMF forecast the budget deficit will further deepen and fall below the minimum target of 3% established under the Economic Liberty Act of Georgia. The IMF also assumes that the budget deficit will deteriorate from the current 2.8% to 3.3% of the GDP.

Among the causes of the economic slowdown, the IMF names the uncertainty about government policies among investors as the key reason. Based on representatives of business, the IMF says that major reforms are often announced without providing details about their content and implementation. Such reforms are healthcare, labor code, Partnership Fund and the establishment of new private equity funds.

According to the IMF, the reduction in electricity tariffs lowered the profitability of electricity distribution companies, thereby hindering investments in this sector. The IMF also notes the vagueness of the reasons behind that reduction. It recommends the Georgian government to publish the terms of the agreements reached with the electricity distribution companies, so that the reasons behind the tariff cuts can be understood.

According to the IMF, the uncertainty among investors was already observed ahead of last year's October parliamentary elections and reinforced thereafter. The IMF explains that by several reasons, including slower disbursement of government spending, higher than anticipated real interest rates, and political tensions.

The IMF believes that the Georgian economy has a great potential to grow but that requires that political tension are diffused and the government makes it clear how it is going to run the country and what its policies are.

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