Despite Georgia’s strong underlying economic performance, Russia’s current economic embargo will lead “to moderately slower growth of 6-7%” in 2007, an IMF mission said on December 12.
The IMF mission, which visited Georgia from December 2-12, reviewed the recent economic developments and also said that the inflation rate has slowed down from its peak in mid-2006 - 14,5% - and is likely to be “less than 10%” by the end of this year.
Despite external shocks related to the loss of Russian export markets, Georgia’s economy “remains robust” and real GDP growth could be about 8% in 2006, according to the mission.
But the IMF has also warned that Russia’s embargo will increase the external current account deficit by about USD 250-300 million in 2007.
“The [Georgian] authorities expect that this will be financed by higher foreign exchange proceeds generated by the large inflow of foreign direct investment projects for this year and 2007, as well as by a very substantial increase in tourism revenues,” the IMF mission said.
But in view of the considerable uncertainty regarding the size and timing of foreign direct investment inflows, the mission recommended to reduce the size of the overall fiscal deficit from the current projection of 2,5% of GDP for 2007 to ease adjustment to the external shock.
The IMF also said that the economy's recovery from the external shock will largely depend on its ability to generate rapid export growth in the medium term.
“To this end, the mission urges the authorities to accelerate structural reforms, especially in those areas pertaining to stronger property rights.”