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IMF tells Georgia to reassure investors to help flagging economy
June 11, 2013 / 3:36 PM / 4 years ago

IMF tells Georgia to reassure investors to help flagging economy

* IMF cuts 2013 GDP growth forecast to 4 pct from 6 pct

* Says investors need more clarity over policies

* Projects inflation at 1.5 pct

By Margarita Antidze

TBILISI, June 11 (Reuters) - Georgia should reduce political uncertainty and explain government policies to investors to avert an economic slowdown, the International Monetary Fund said on Tuesday.

Prime Minister Bidzina Ivanishvili and President Mikheil Saakashvili have been trading accusations of corruption and misrule in a feud that has threatened Georgia’s reputation as one of the more business-friendly states in the region.

The IMF downgraded its economic growth forecast for the former Soviet republic to 4 percent this year from 6 percent projected at the end of 2012 and said weaker growth and inflation are likely to reduce government revenues by almost 1 percent of gross domestic product (GDP).

“The slowdown turned out to be more protracted than many of us thought initially,” said Azim Sadikov, the IMF’s resident representative in Georgia, summing up a visit last month.

“Investors would like to find out more details about content and implementation of major initiatives,” he said in e-mailed answers to Reuters questions. “Some have been holding back investment due to political and policy uncertainty.”

Foreign investors spent an estimated $226 million in Georgia in the first quarter of 2013, far too slow a pace to meet the government’s $2 billion target for the year.

Sadikov also attributed the slowdown partly to shortfalls in government spending.

Spending was delayed because the new government decided to review some public projects and tighten procurement rules.

“The government’s underspending has contributed to the slowdown, while (the) regional slowdown might be having a dampening impact on FDI in Georgia,” Sadikov said.

Uncertainty may persist in Georgia, a conduit for Caspian oil and gas to Europe, until a presidential election this October, even though the candidate Ivanishvili is backing, Georgy Margvelashvili, is favoured to win.

Georgia’s GDP grew by 1.7 percent in the first quarter, year-on-year, down from 6.7 percent a year earlier, putting the government’s full-year forecast of 6 percent growth into doubt.

Unemployment is 15 percent and the new government will need to encourage investment to cover higher social spending targets.

The IMF praised the central bank for easing monetary policy - the benchmark interest rate has been cut by a percentage point since December to 4.25 percent - and saw “scope for further reductions”.

Inflation will increase to 1.5 percent by year-end after 1.4 percent deflation in 2012, the fund said in a statement after its mission, projecting a further rise to about 5.0 percent by end-2014. (Reporting by Margarita Antidze; Editing by Ruth Pitchford; Editing by Douglas Busvine/Ruth Pitchford)

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