IMF Warns Against ‘Erosion of Central Bank Independence’

The Georgian authorities should avoid “any erosion of central bank independence”, an IMF mission, which visited Georgia on February 29-March 7, has said.

“In this regard, the mission believes that requirements for frequent parliamentary approval of monetary policy goals and instruments, combined with new provisions for the automatic dismissal of the NBG President for missing the inflation target, would weaken the operations of the central bank,” it said on March 7.
 
A comprehensive economic package, which is being discussed by Parliament, among other things, includes a proposal to increase the National Bank’s accountability in respect of monetary policy. If annual inflation reaches 12%, the president of the National Bank will have to resign, according to the draft. Although the draft has already been passed by the parliament with its first hearing, lawmakers agreed on March 7 to delay a second hearing on this particular provision and to continue discussions on the matter.

The IMF mission noted that Georgia’s economic performance in 2007 was “exceptionally strong,” with growth of real GDP exceeding 12%. The mission projects real growth at about 9% this year.

It, however also noted that inflation was 11%, exceeding the authorities’ single-digit target.

“In part this was the result of higher global food and energy prices, but also reflected the loose monetary stance that prevailed during most of 2007, with broad measures of money supply increasing by 50 percent,” the IMF mission said. “Of particular importance to maintaining macroeconomic stability is to resist new government expenditure initiatives.”

The Georgian government has pledged to reduce inflation to 8% by the end of 2008.

The mission plans to visit Georgia again this June to conduct so-called Article IV consultations. The IMF consults regularly with each member government – a process known as Article IV Consultations – to assess each country’s economic performance. 

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