IMF: 14,5% Inflation Poses ‘Serious Risk’

A mission of the International Monetary Fund said on August 18 that inflation in Georgia accelerated to 14,5% by the end of July, well above planned targets.

The IMF mission visited Georgia on August 11-18 to review recent economic developments and assess the implementation of the government?s economic reform program.

The 2006 budget sets the inflation rate at 5-6%. Twelve-month inflation was about 6% as of end-April 2006, according to IMF.

?Although Georgia’s economic growth performance continues to be strong, the economy is now characterized by significant inflationary pressure? The current level of inflation is well above the program?s targets and poses a serious risk to macroeconomic stability,? the IMF mission said in a statement at the conclusion of the visit.

The sharp increase in inflation reflects demand pressures in the economy resulting mainly from excess money supply, the IMF mission said.

The IMF has called on the Georgian authorities to tighten current fiscal and monetary stances, and recommended that a combination of expenditure restraint, a smaller deficit and slower growth of reserve and broad money would help reduce demand pressures.

?To this end, understandings were reached that would limit the overall fiscal deficit to 1.8 percent of the GDP. Taken together, these measures should reduce inflationary pressure during the remaining months of 2006 and improve prospects of achieving end-2006 inflation of around 10 percent. For 2007, efforts to reduce inflation will be intensified,? the IMF mission said.

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