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IMF: Regional Tensions Undermines the Prospects of the Economy of Georgia

The International Monetary Fund (IMF) says that the regional geopolitical tensions and the risk of transmitting shocks from neighboring countries weakens the prospects for the economy, especially in terms of trade and remittances, and may stallforeign direct investment.

“Despite the encouraging results of the Fund-supported program in the 2012-2013 period, the country still faces macro-economic challenges,” the IMF says, adding that the high current account deficit and foreign debt significantly contributes to the vulnerability of the economy.

Despite the gradual reduction, high dollarization weakens the effectiveness of monetary policy and puts banks at risk – the International Monetary Fund underlines.

They also say  that in early 2013 fiscal policy proved to be procyclical: in the beginning of the year  – tough, when the economy was slow; at the end of the year – moderate, when the economy was already in the process of recovery. Fiscal expansion has contributed to the acceleration of economic growth in late 2013, however, formed the pressure in the direction of exchange rate depreciation, which led to a decline in foreign exchange reserves.

According to the IMF, the Deep and Comprehensive Free Trade Agreement (DCFTA) and the EU Association Agreement is welcomed, which indicates  the increased integration with the EU, which, they say, in turn, should promote growth of export competitiveness and in foreign direct investment.