Middle East and Central Asia > Georgia

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Mr. Alessandro Cantelmo, Nikos Fatouros, Mr. Giovanni Melina, and Mr. Chris Papageorgiou
This paper analyzes monetary policy regimes in emerging and developing economies where climate-related natural disasters are major macroeconomic shocks. A narrative analysis of IMF reports published around the occurrence of natural disasters documents their impact on important macroeconomic variables and monetary policy responses. While countries with at least some degree of monetary policy independence typically react by tightening the monetary policy stance, in a sizable number of cases monetary policy was accommodated. Given the lack of consensus on best practices in these circumstances, a small open-economy New-Keynesian model with disaster shocks is leveraged to evaluate welfare under alternative monetary policy rules. Results suggest that responding to inflation to an extent sufficient to keep inflation expectations anchored, while allowing temporary deviations from its target is the welfare maximizing policy. Alternative regimes such as strict inflation targeting, exchange rate pegs, or Taylor rules explicitly responding to economic activity or the exchange rate would be welfare-detrimental.
Iulia Ruxandra Teodoru and Klakow Akepanidtaworn
The COVID-19 crisis raises the risk of renewed financial sector pressures in the Caucasus and Central Asia (CCA) region in the period ahead. Bank distress and its economic and fiscal fallout have been recurring features of many CCA countries, as seen after the global financial crisis and the 2014–15 oil price shock. Strong policy responses have delayed the full impact of the COVID crisis so far, but financial sector risks will increase once public support is phased out. If these risks are not preemptively addressed, banks’ ability to lend during the recovery phase could be impaired and there may be a need for costly public interventions, as in the past.
International Monetary Fund. Monetary and Capital Markets Department
Since the 2015 FSAP, the NBG has significantly strengthened its institutional framework for macroprudential policy and put in place a comprehensive toolkit. Among other reforms, to strengthen the transparency of and accountability for macroprudential policy, the NBG published its Macroprudential Policy Strategy in 2019, which sets out five intermediate objectives: (i) mitigating and preventing excessive credit growth and leverage; (ii) mitigating and preventing excessive maturity mismatch and market illiquidity; (iii) limiting direct and indirect exposure concentrations; (iv) limiting the systemic impact of misaligned incentives with a view to reducing moral hazard; and (v) reducing dollarization of the financial system.
International Monetary Fund. Monetary and Capital Markets Department
A recovery from the Covid-19 pandemic now underway in Georgia has benefited from a recent pickup in external demand and substantial fiscal support. Significant exchange rate depreciation, global commodity price increases and supply constraints have contributed to inflationary pressures and provided impetus for the authorities to start tightening monetary policy during 2021. Credit growth slowed during the pandemic but has since picked up again. Household and firm indebtedness is relatively high reflecting rapid credit growth in recent years. Banks face elevated credit risks as they carry high exposure to unhedged borrowers in foreign currency, some of whom are facing debt-servicing difficulties due to the pandemic.