Georgia: Economic Developments since the Rose Revolution

1
Georgia Economic Developments since the Rose
Revolution

• Robert Christiansen
• IMF Resident Representative in Georgia.
• JVI, July 2005

2
Outline of Presentation

• Political overview
• Major economic Indicators
• Priorities of new government
• Fiscal condition
• Monetary condition
• Prospects for 2005

3
Resignation of Shevardnadze

• Eduard Shevardnadze - president of Georgia
  from 1995 until November 2003

4
Election of the New President

• Michael Saakashvili elected president of
  Georgia since January 2004.

5
Election of New Parliament

• Nino Burjanadze speaker of the parliament elected
  in March 2004
• The parliament consists of 235 MPs
• 152 Pro-government
• 23 Opposition and
• 60 Independent

6
Prime Minister

• Zurab Zhvania, prime minister during February
  2004 February 2005.

• Zurab Noghaideli, current prime minister.

7
Major Economic Indicators, 2004

• GDP per capita
• USD 1,153 (current prices).
• Poverty rate
• 52.7 percent (overall)
• 17.7 percent (extreme poverty).
• Inflation
• 7.5 percent (end period).
• Source National Bank of Georgia SDS, IMF

8
Major Economic Indicators, 2004 GDP Growth
Source SDS, projected
9
Major Economic Indicators, 2004 GDP Growth
Source SDS
10
Major Economic Indicators, 2004 GDP Composition
Source SDS
11
Major Economic Indicators, 2004 Poverty
percent
Source SDS
12
Major Economic Indicators, 2004 Prices
Source SDS
13
Major Economic Indicators, 2004 Export
Source SDS
14
Priorities of the New Government

• Deliver tangible and visible results quickly
• Demonstrate progress in fighting corruption and
• Meet expectations

15
Expectations Facing the New Government

• Source Georgian Opinion Research Business
  International April, 2005

16
Directions of the New Government

• Fight corruption in fiscal area
• Improve fiscal management and
• Use expenditures to meet expectations of public

17
Economic Priorities Consolidated Budget, as per
cent of GDP
Source MOF
18
Economic Priorities Revenue Collection
Source MOF
19
Economic Priorities Revenue Composition, as per
cent of GDP
Source MOF
20
Economic Priorities Expenditures
Source MOF
21
Economic Priorities Main Expenditure Categories
Source MOF
22
Economic Priorities Arrears Clearance, as per
cent of GDP
Source MOF
23
Economic Priorities Deficit as per cent of GDP
Source MOF
24
Economic Priorities Privatization Revenues, as
per cent of GDP
Source MOF
25
Monetary Developments Overview

• NBG faced with 2 developments
• Capital inflow, and
• Increased demand for Lari.

26
Monetary Developments FOREX Market
Source NBG
27
Monetary Developments NBG Intervention
Source NBG
28
Monetary Developments Reserve Money
45.5 growth comp to Jan.04
Source NBG
29
Monetary Developments Broad Money
46 growth comp. to Jan 04
Source NBG
30
Monetary Developments Inflation, CPI
CPI
Source SDS of Georgia CPI, Dec 2001 100
31
Monetary Developments NER, GEL/USD
NER
Source NBG
32
Monetary Developments REER
REER
128.5
122.5
107.7
Source IMF
33
Prospects for 2005

• Economic policy mix was appropriate in 2004 but
  could become skewed in 2005

34
Prospects for 2005

• More capital inflows are likely
• pressure on exchange rate towards appreciation

NER, Gel per
S1F.E.
Capital inflow
DF.E.
NER1
S2F.E.
NER2
Q1
Q2
Q
35
Prospects for 2005

• Capital inflow, along with fiscal expansion might
  pose threat to macroeconomic stability

36
Prospects for 2005

• NBG faces tradeoff between allowing inflation or
  nominal appreciation
• Both have a negative effect on Real Effective
  Exchange Rate (REER)
• Appreciation (increase) of REER is harmful for
  countrys international competitiveness

37
Prospects for 2005

• Government should prioritize macroeconomic
  stability

38
Summary

• Price stability should become the major target
  for the monetary authorities
• Fiscal authorities should be concerned about the
  threat to macroeconomic stability and perhaps
  consider curtailing some spending