- Despite heightened geopolitical uncertainty and elevated energy prices, Georgia's economic performance remains robust, and fiscal and external buffers have strengthened further. Inflation remains above target and price pressures have recently begun to broaden. A tighter monetary policy stance may be needed to return inflation to target.
- Macroeconomic policies should remain cautious given above-target inflation and heightened uncertainty. Further progress on central bank and state-owned enterprise governance, together with reforms to raise productivity, improve competitiveness, and create better jobs, would help make growth more durable and inclusive.
Washington, DC: An International Monetary Fund (IMF) team led by Alejandro Hajdenberg held meetings in Tbilisi from November 9 to 13, 2026, to discuss recent economic and financial developments and progress on reform priorities. At the end of the visit, Mr. Hajdenberg issued the following statement:
"Georgia's economy continues to expand strongly despite heightened geopolitical uncertainty and elevated energy prices. Real GDP grew by 7.4 percent year on year during January-September 2026, driven by continued expansion in the information and communication technology (ICT), transport, and trade sectors, although growth has moderated somewhat in recent months. The war in the Middle East has thus far had limited impact on overall tourism inflows and broader economic activity, though it reduced tourist arrivals from the directly affected countries. Following growth of 7.5 percent in 2025, the economy is projected to expand by 7.2 percent in 2026 and 5.7 percent in 2027, gradually converging toward its medium-term potential rate of around 5 percent.
"Inflation has exceeded the National Bank of Georgia's (NBG) 3 percent target since March 2025, rising to 5.9 percent year on year in October 2026. While higher energy prices linked to the war in the Middle East remain an important driver, price pressures have become more widespread. Core inflation rose to 4.0 percent in October, with tradable goods inflation increasing and services inflation remaining elevated. Inflation is projected to decline gradually as the effects of higher energy prices dissipate but would nevertheless remain above target in the near term. The NBG raised its policy rate in May and has since maintained it at 8.25 percent. With inflation proving more persistent than previously expected, a tighter monetary policy stance may be needed to return inflation to target. The policy response should be informed by the evolution of second-round effects and inflation expectations.
"Georgia's external position has strengthened considerably. The current account deficit narrowed to 2.5 percent of GDP in the first half of 2026, supported by robust ICT service exports and moderate import growth. Gross international reserves have risen markedly, reaching a record US$8.2 billion at end-October, as the NBG continued its purchases of foreign exchange amid a narrower current account deficit and sizable financial inflows. Further reserve accumulation remains appropriate, as market conditions allow, to bolster resilience against external financing shocks and support market confidence, while preserving exchange rate flexibility.
"The outlook remains subject to considerable uncertainty. A renewed escalation of the war in the Middle East could raise energy and food prices and disrupt tourism. An escalation of domestic political tensions and strained relations with the European Union could weigh on investor sentiment. An end to the war in Ukraine could enhance regional stability, confidence, and trade prospects, but could also reverse some of the migration and financial flows that have supported growth in recent years. On the upside, stronger investment, including from large real estate projects, could further support activity.
"Fiscal policy has remained prudent. The fiscal deficit is projected at around 1½ percent of GDP in 2026, while public debt is expected to decline to about 33 percent of GDP. The lower-than-budgeted deficit reflects strong revenue performance and, as in 2025, capital spending underexecution, which has delayed public investment. The draft 2027 budget targets a deficit of 2½ percent of GDP and envisages higher social spending, public sector wages, and capital investment. Revised procurement contracts and greater project readiness should support more timely capital budget execution in 2027, although implementation risks remain. Any measures to address higher energy prices should be well targeted, protect vulnerable households, and avoid broad-based interventions that would create fiscal costs and distort price signals.
"The financial sector remains sound, with banks well-capitalized, liquid, and profitable, and nonperforming loans remaining low. Despite substantial progress, dollarization remains an important financial vulnerability, and the recent increase in foreign currency lending, including mortgages, warrants continued monitoring. The NBG has made significant progress in developing the regulatory and supervisory framework for virtual assets. As the sector develops, effective supervision and enforcement, including the implementation of existing safeguards against money laundering, financing of terrorism, and sanctions evasion, will be important. "Rapid growth in recent years has been accompanied by substantial improvements in labor market outcomes, but employment remains relatively low and many workers have yet to benefit from more productive employment. Reducing skills mismatches and improving vocational education and employment services would broaden access to better jobs. More broadly, reforms to raise productivity, build human capital, and foster productive private investment would help make growth more inclusive.
"The recent amendments to the NBG law include meaningful improvements. They introduce collegial monetary policy decision-making and strengthen the succession framework and eligibility criteria for governing board members. We welcome the authorities' intention to also introduce collegial decision-making in the financial stability committee, and we encourage them to take the necessary steps to ensure a majority of non-executive board members at all times, in line with past recommendations.
"Building on substantial progress in the monitoring and financial oversight of state-owned enterprises (SOEs), the recently adopted SOE action plan provides a basis for further reform. Effective implementation will be important, while further steps will be needed to improve corporate governance and accountability. The Economic Development Corporation of Georgia should focus on addressing market failures in access to finance, with safeguards to avoid crowding out private financing and creating fiscal risks.
"We would like to thank the authorities and other counterparts for their warm hospitality and productive discussions. The team met with NBG Governor Turnava, Finance Minister Khutsishvili, Deputy Prime Minister and Minister of Economy and Sustainable Development Kvrivishvili, other senior officials, and representatives of the private sector, civil society organizations, and development partners. The next Article IV consultation is expected to take place in April 2027."
