On November 2, ISET hosted Francois Painchaud, the IMF Resident Representative in Georgia. Mr. Painchaud presented the 2016 November Regional Economic Outlook for the Caucasus and Central Asia, highlighting three main areas: global and regional environment, outlook and policy actions, and policy priorities.

At the beginning of the presentation, Mr. Painchaud overviewed the main trends in the global and regional environment. Firstly, the IMF predicts lower real GDP growth in 2016 relative to the previous year. This tendency is mainly driven by a growth slowdown in the US, Eurozone, and China. Secondly, predictions for 2017 are much more optimistic, mainly at the expense of higher growth projections in the US, Russia, and emerging markets.

Thirdly, risks related to global GDP growth have decreased, with global financial stability mainly coming from easier fiscal and monetary policies and fewer credit risks. The IMF also predicts an increase in oil prices, but these will apparently not return to preceding levels in the near future. Furthermore, commodity prices are expected to remain weak.

In the second part of the presentation, Mr. Painchaud discussed the outlook and policy actions of the region. He stated that exports and remittance are still key channels through which external conditions affect regional growth. Therefore, deterioration of these variables has been observed in nearly all countries in the region, while oil exporter countries suffered more from the negative shocks than oil importers.

In addition, Mr. Painchaud evaluated the vulnerability of the financial sector. Despite the fact that volatility in this sector has risen over the last year, Georgia still remains one of the most stable financial sectors in the region. Furthermore, despite high dollarization, the banking system remains healthy after the lari's depreciation against the US dollar. He also indicated that exchange rate fluctuations in Georgia were smooth, as the NBG responded well to the external shocks.

At the end of this section, Mr. Painchaud presented risks of the outlook: weaker growth in trading partners, further weakening of prices for oil and other commodities, an increase in global risk aversion and financing costs, and an increase in global protectionism and/or slower domestic reforms.

In the third section of the presentation, Mr. Painchaud suggested some policy recommendations:

• Promote growth in real terms if budget space and buffers allow.

• Develop credible medium-term consolidation plans to ensure sustainability.

• Have a more aggressive monetary policy to meet inflation targets and stimulate economic growth.

• Strengthen monetary and exchange rate frameworks.

• Improve supervision, macro-prudential policy, and crises management frameworks.

• Reduce dollarization by different policy instruments.

• Have structural reforms to boost medium-term growth prospects, improve living standards, and create jobs.

See the link for Regional Economic Outlook in the Caucasus and Central Asia, October 16, 2016.