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Georgia has all the Resources to get the Economy to Grow Strongly again: IMF

Published: July 1, 2013 | 8:17 am
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Azim Sadikov: „The key medium-term challenge for Georgia is to generate strong growth, but to make sure that this growth is inclusive and sustainable“


Georgia’s economic growth, slowdown and promising pick-up, communication between the government and business sector, challenges and solutions- During an interview with The COMMERCIAL TIMES Mr. Azim Sadikov, the International Monetary Fund (IMF) Resident Representative in Georgia, speaks about top important issues of the country’s economy.

- The IMF has been observing the local climate since the change of Georgian government. Recently, a conclusion was published covering different sectors. In your opinion, which direction does the country’s economic development vector lean to?

- The new government has started working on its long-term development strategy. I think it will take some months for the government to spell out its vision for Georgia. I do not wish to pre-empt that. That being said, it is clear that the government’s priorities will be to tackle medium-term challenges in Georgia.

So, what are these medium-term challenges? In our view, the key medium-term challenge for Georgia is to generate strong growth, but to make sure that this growth is inclusive and sustainable. So, here are the three key words – strong, inclusive, and sustainable. Let me talk about each of these three pillars. What do we mean by strong growth? In the past, a lot of the growth came from very strong productivity gains. It will be difficult to replicate this success, so it will be important that Georgia generates new growth both from the productivity gains, but also from more private sector investment. This is why it will be important that the new Georgian government reinvigorates reforms of the business environment, enhancing the property rights, improving access to finance for enterprises, especially the small and medium-sized ones, and also improving the quality of the labour force.

The second pillar is inclusiveness. We have seen strong growth in Georgia, but poverty has remained high, and the level of unemployment has failed to come down by much. Therefore, it is important that the new growth that the country generates will create jobs. This is tough, but in our view, the government has to pay attention to improving the quality of education, and providing opportunities for vocational training to workers, so that they acquire the necessary set of skills. Also, they have to make the policies more socially balanced. In that sense, we welcome the 2013 budget, because it’s more socially balanced, although we wish that the increase in social spending was more targeted.

The third pillar is sustainability. We had high growth rates in Georgia, but the current account deficit was very high too. Over time, high current account deficits can lead to the build-up of macro-vulnerabilities and risks, and undermine the growth. So, it is important that Georgia improves its competitiveness, so it could export more, and import less. That would make the growth stable.

- What are the main challenges that Georgia faces today? Would you say that the Georgian government has enough resources to settle the issues?

- We have talked about the main medium-term challenges earlier. The Georgian government has all the resources to tackle these, even though it will not be easy. As for the short-term challenge, I think it will be to jump-start the economy. We have had some slowing down in the last quarter of 2012, and in the first quarter of this year, so it is important that the economy reverts back to the strong growth mode. The government would need to take certain measures to jump-start the economy, but it has committed itself to sound policies, and it has all the resources to get the economy to grow strongly again.

- Lots of discussions are ongoing around Georgia’s economic growth forecast downgrade by international financial institutions. What basic factors is the IMF’s decision based on?

- We have revised our projections of growth for 2013. Right now, we are projecting 4%. This is based on a few key assumptions. One of them was the weak growth during the first quarter of these years. Our projection presumes that there will be pick-up in the next quarter. Whether or not we get to the 4% mark, will hinge upon certain actions which the government would have to take.

- According to the IMF’s conclusion, provided that the political situation remains stable, business uncertainty subsides and supportive economic policies are in place, the economy should grow rapidly in the second half of this year. Where do you see the real potential for achieving economic growth?

- Let me talk first about what I think is needed to get the economy growing strongly again. There were several reasons why we had a slowdown. Obviously, one of them was the elections and the period of transition which followed them. Any sort of transition anywhere in the world leads to the investors adopting a ‘wait and see’ attitude, because they want to see what will happen, what the new government’s policies will be, and so on. This leads to a slowdown in investment, in turn leading to a slowdown in economic growth. It is important for the political environment to remain stable, but also for the government to provide more policy certainty on its initiatives, and its priorities. Lastly, the government spending has been weak during the last quarter of this year, and it has contributed to the slowdown. It would be important to reverse this shortfall in spending. That would provide an impulse for the economy to start growing again strongly.

- The conclusion also says that while broadly supporting the government’s reform efforts, premature announcement of some policy initiatives before details are known, and, in the case of the newly adopted Labor Code, difficult and drawn-out consultations with key stakeholders, could have contributed to policy uncertainty. Providing detailed information about the objectives, implementation, and the timeline of new policy initiatives before announcing them to the public is needed to help restore business confidence. Could you please name specific problems that the government has in terms of communication?

- I would not say that there is a problem, but there is room for improvement. Businesses like predictability. They are not necessarily against reforms and change, in many cases they support it. However, they would want to know where the reforms are going, and how they will affect their business. So, when initiatives are announced, it is best for business to get clarity. The businesses can then factor this into their decision on whether to invest, how much to invest, how many people to hire, and so on. It is important to provide the businesses with this sort of predictability.

In terms of the Labour Code, we generally welcome the changes to it, as they go in the right direction. They provide more balance between the employers and the employees, and we believe that in the medium-term, this will contribute to a boost in the morale and productivity of the employees. However, the process itself was somewhat difficult and protracted, having been launched in November, and only being adopted recently. I think that confusing messages were sent to businesses. Policy initiatives can be good, and we know that the government has good intentions and ideas, but it is important to communicate those to the businesses, so that they know what is happening, and they can factor them into their decisions.

-What’s your view regarding the relationship between Georgian government and the National Bank of Georgia (NBG)? As you’re aware, Georgian PM publicly criticized the President of NBG, saying that he should not make political statements.

-The government has a good working relationship with the National Bank of Georgia. We have witnessed this, since we are in frequent discussions with both the Ministry of Finance, and with the NBG. The IMF strongly supports the independence of the National Bank. The need for its independence is reflected in the Georgian law. We also welcome the new government’s announcement that it intends to respect the NBG’s independence. We welcome the Bank’s recent initiatives to improve its inflation report, organise meetings, and explain the recent developments in inflation, and the decisions made by its monetary committee.

Sandro Vepkhvadze

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