Tbilisi: An International Monetary Fund (IMF) mission led by Mr. Alejandro Hajdenberg conducted discussions for the 2026 Article IV consultation with Georgia from March 25 to April 7, 2026, in Tbilisi. At the end of the visit, Mr. Hajdenberg issued the following statement:
Georgia’s economic performance has been robust, supported by sound macroeconomic management and policies. At the same time, amid rising global uncertainty, notably from the war in the Middle East, the outlook is becoming more challenging. Assuming the conflict is short-lived, growth is expected to remain strong, albeit moderating, extending the solid performance observed in recent years. While headline inflation has risen above target due to higher food and energy prices, core inflation remains contained. The external position has strengthened, with the current account deficit narrowing and gross international reserves reaching historic highs. Fiscal policy continues to be disciplined, with public debt at a low level. Although the outlook is clouded by heightened geopolitical risks—including due to a possibly protracted war in the Middle East—Georgia is well positioned to absorb external shocks, supported by strong macroeconomic fundamentals and policy buffers. Looking ahead, policies should focus on preserving macro-financial stability and hard-won credibility, while accelerating structural reforms to sustain strong growth and create more jobs.
Recent economic developments, outlook, and risks
Growth momentum remained firm in early 2026, before the start of the war in the Middle East. Rapid estimates indicate that real GDP growth reached 8.4 percent in January-February, up from 7.5 percent in 2025. On the supply side, activity was driven by a sustained expansion in information and communication technology (ICT), transport, and education services. On the demand side, private consumption remained the main driver, supported by moderating but still solid real wage and consumer credit growth. Leading indicators suggest that the impact of the war on economic activity has so far been limited and concentrated mainly on tourism. Assuming the conflict is short lived, real GDP growth is projected to ease to 5.3 percent this year before converging to its potential rate of around 5 percent in the medium term.
Inflation pressures have increased since the start of the conflict, but core inflation remained subdued. After ending 2025 at 4 percent, headline inflation stood at 4.3 percent in March, reflecting higher imported food and oil prices, partly related to the war in the Middle East, while core inflation remained below the National Bank of Georgia’s (NBG) 3 percent target. Inflation is projected to stay elevated in the first half of 2026, driven by increases in fuel and electricity prices, before converging to target by mid-2027 as the one-off effects of higher food and energy prices dissipate, demand moderates, and the output gap closes.
The external position has strengthened but is exposed to volatile energy prices and tourism receipts. According to initial estimates, the current account deficit narrowed to 2.6 percent of GDP in 2025, supported by strong services exports, lower energy import costs, and robust remittances. Gross international reserves rose to historic highs, exceeding the IMF’s reserve adequacy threshold for the first time since 2022, reflecting sizable foreign exchange (FX) purchases amid strong external inflows and deposit de-dollarization, as well as valuation gains. The current account deficit is projected to widen to 5 percent of GDP in 2026, driven by higher oil prices and lower tourism receipts, and to stabilize around this level over the medium term, as the closing output gap and continued growth of less import-intensive exports—such as ICT and education services—help contain imports.
Fiscal performance has been strong. The fiscal deficit declined well below budget targets in 2025, reflecting robust revenues and under-execution of capital spending, while public debt fell below 35 percent of GDP. The 2026 budget appropriately targets a deficit of 2.5 percent of GDP, envisaging a rebound in capital spending. The implementation and procurement bottlenecks experienced last year are expected to ease, with major infrastructure projects moving forward. The outturn is projected to be somewhat lower than budgeted, supported by higher-than-expected NBG dividends and strong revenue performance. The successful rollover of a $500 million Eurobond in January underscores investor confidence in Georgia’s macroeconomic fundamentals and policy credibility.
The outlook is highly uncertain and depends largely on external developments. An escalation of the conflict in the Middle East could further disrupt tourism inflows from Israel and the Gulf countries, raise inflation, and tighten financial conditions. However, a more protracted conflict could also see redirected financial and tourism flows toward Georgia and increased transit along the Middle Corridor. A peace settlement in Ukraine could unwind some of the gains from migration, financial inflows, and transit trade, but would also support broader regional stability and confidence. Similarly, a peace agreement between Azerbaijan and Armenia could result in new trade routes that bypass Georgia but also attract more investment to the region as a whole. Challenges in the relations with the EU could dampen investor sentiment and foreign direct investment, while the planned USD 6.6 billion real estate project by a UAE investor represents a significant upside to growth and employment.
Policy priorities
Monetary and exchange rate policies. Monetary policy should remain focused on ensuring that inflation returns sustainably to target. While current policy looks through transitory supply‑side shocks, the NBG has appropriately signaled its readiness to tighten if inflationary pressures persist, second-round effects emerge, or inflation expectations risk becoming de‑anchored. Exchange rate flexibility should be preserved, with FX interventions limited to smoothing episodes of excessive volatility. Meanwhile, continued opportunistic reserve accumulation would further reinforce precautionary buffers in Georgia’s highly dollarized economy.
NBG governance. Advancing NBG governance reform remains essential to strengthen institutional safeguards. Most recommendations of the IMF’s 2022 Safeguards Assessment have been implemented, including eliminating the possibility of discretionary transfers to the government, and recent IMF technical assistance has supported further progress in several areas. Steps have already been taken, including reallocating responsibilities among executive members and strengthening the succession framework for the Governor of the NBG, which are welcome. The authorities also plan to move forward with reforms related to collegial decision-making and board member qualification requirements. Further progress in enhancing board oversight arrangements will be important to fully align the NBG’s governance framework with international best practices.
Fiscal policy. Maintaining a broadly neutral fiscal stance over the medium term is appropriate to stabilize public debt around its current level. If the conflict significantly affects activity and purchasing power, temporary and well-targeted support could be provided to the most vulnerable within the budgetary perimeter, while avoiding broad‑based subsidies or tax cuts. Ensuring full and timely execution of capital spending will be critical to support medium-term growth. Streamlining tax expenditures, improving mining taxation, further improving tax administration, and enhancing spending efficiency would help create space for policy priorities.
Governance of state-owned enterprises (SOEs). Advancing SOE governance reforms remains essential to improve performance and contain fiscal risks. It is encouraging that the authorities are updating their action plan in line with recent IMF technical assistance recommendations, with a focus on expanding the Ministry of Finance’s financial oversight over major SOEs and improving the assessment and management of quasi-fiscal activities. Further progress in other areas of the reform agenda, including to strengthen corporate governance, will be important.
Financial sector policies. The banking system remains well capitalized, liquid, and profitable, but continued vigilance is warranted amid evolving risks, including from non-bank financial activities. Priorities include closely monitoring rapid consumer and variable‑rate lending and lending by real estate developers, further reducing unhedged FX lending, completing the bank resolution and crisis management framework, and advancing consolidated supervision of banks’ nonbank and cross-border activities in line with recent IMF TA recommendations. While digital asset holdings remain modest, their rapid growth underscores the importance of continued efforts to develop an effective regulatory and supervisory framework for virtual asset service providers.
Labor market reforms. Sustaining strong growth and expanding job creation will require addressing persistent constraints. A key challenge is structurally high unemployment—particularly among youth—driven by skill mismatches and weak work incentives amid low wages. Reforms should focus on supporting vocational education and training and improving public employment services to better align skills with labor market needs, aligning social assistance with work incentives, and supporting high-productivity sectors that generate well-paid jobs. The authorities’ reform agenda in education and the labor market, together with new initiatives to support entrepreneurship and capital-market development, are intended to address these challenges. Continued engagement with development partners and sector participants would support these efforts.
Infrastructure and business environment. Continued strengthening of energy, transport, and logistics infrastructure will be essential to boost competitiveness and connectivity. Ongoing efforts to accelerate infrastructure investment and deepen regional cooperation are important and will help reinforce Georgia’s role as a trade and transit hub. Strengthening anti-corruption and judicial institutions, alongside maintaining a predictable and market-friendly policy environment, will be key to sustaining business confidence and investment. Timely stakeholder consultation and cost-benefit analysis of policy changes would further improve predictability and support effective reform implementation.
read more: https://www.imf.org/en/news/articles/2026/04/07/cs-04072026-georgia-staff-cs-2026-aiv
