This Selected Issues paper reviews the financial sector development in Georgia in recent years, and investigates why it has lagged behind economic development, as well as developments in more advanced transition economies. The paper briefly reviews recent financial sector development in Georgia, comparing it with developments in its neighboring countries in the Caucasus, the seven poorest countries in the Commonwealth of Independent States (CIS-7), the Baltics, and central and eastern Europe. The paper also analyzes possible factors constraining financial intermediation in Georgia and in some of the CIS countries more generally.
IV. L egal E ntities of P ublic L aw in G eorgia : A ccountability and R eform
A. Current Situation
76. This paper assesses the Georgian LEPLreform strategy, noting its strengths while highlighting certain risks in light of international experience . It then presents proposals for ways to mitigate those risks, consistent with the Georgian strategy and philosophy of fiscal decentralization.
77. The Rose Revolution in Georgia ushered in an economic team that revitalized the reform of Legal Entities of Public Law (LEPLs) . The authorities viewed
generally, the authorities are undertaking a program of reforms of LEPLs, which have become the cornerstone of their decentralization strategy . The authorities are committed to decentralizing the provision of government services, and are delegating control and accountability of major government functions to these LEPLs. While having no disagreement with these principles, staff argued that a monitoring and reporting framework needed to be put in place urgently. The authorities agreed it was important to ensure the LEPLreform did not undermine gains in fiscal transparency
This 2006 Article IV Consultation highlights that Georgia’s economy has performed well over the last two years, and the fiscal turnaround has been impressive. Since the change in government in late 2003, Georgia has demonstrated strong fiscal performance and a renewed commitment to press ahead with structural reforms, including the privatization of state-owned enterprises and further legal, fiscal, and financial reforms. Executive Directors have welcomed the gains from the far-reaching tax reform enacted by the authorities in 2005 while encouraging them to continue strengthening tax administration.
reporting of financial activities of LEPLs, reforms in tax and customs administration, and progress in financial sector reforms. It will also take stock of ongoing and planned steps to add momentum to structural reforms, especially in the areas of pensions, public sector operations, property rights, and additional trade liberalization.
Georgia: Quantitative Performance Criteria and Indicative Targets, 2006–07 1/ 2/
Cumulative Change from End-December 2005
This paper discusses key findings of the Fifth Review Under the Poverty Reduction and Growth Facility for Georgia. Despite economic sanctions imposed by Russia in 2006, Georgia’s economic growth continues to be strong, and inflation has declined. Growth is expected to reach 9 percent in 2006 and to slow only moderately to 7–8 percent in 2007. Inflation was back into single digits by end-2006. The 2007 budget is an appropriate compromise between the country’s pressing spending needs and the goal of macroeconomic stability.
Economic growth continues to be strong, but inflation has increased substantially. The structural agenda remains focused on further improving tax and customs administration, improving fiscal planning and public expenditure management, and strengthening financial markets. The main risks to the economic outlook stems from domestic and external political pressures. Despite these risks and the recent surge in inflation, the government’s strong track record and the commitment to take corrective measures, as needed, bode well for the successful implementation of the program.
structural performance criteria for end-September 2006 shown in Table 1 and the quantitative performance criteria for end-September 2006 in Table 2 . The review will focus on progress in reducing inflation, strengthening monitoring and reporting of financial activities of LEPLs, reforms in tax and customs administration, and progress in financial sector reforms. It will also take stock of ongoing and planned steps to add momentum to structural reforms, especially in the areas of energy, public sector operations, the business climate, and trade liberalization.