IMF sees Georgia's economy contracting 5% in 2020

TBILISI, Sept 16 (Reuters) - The International Monetary Fund expects the Georgian economy to contract by 5% in 2020 due to the COVID-19 pandemic and sees a need for continued exchange rate flexibility and additional policy support due to downside risks.

The Fund said in April it expected Georgia’s gross domestic product (GDP) to decline by 4% this year, slashing its previous forecast for growth of 4.3%.

It sees a recovery in growth of 4% in 2021, supported by an end to measures to contain the virus and a pickup in trading partners’ growth.

The Asia Development Bank said on Monday that the Georgian economy would contract by 5% this year, but get back to 4.5% growth in 2021.

“Growth is expected to contract by 5% ... partly reflecting a more severe slowdown in the second quarter of 2020 and a more protracted recovery in external demand,” the IMF said in a statement after the Fund’s virtual meetings with Georgian officials on Sept. 8-14.

The IMF said that given uncertainty about the pandemic, downside risks to the outlook, including from a more prolonged slowdown in major trading partners and a slower-than-envisaged recovery in tourism, dominated.

The Fund praised the Georgian government for taking measures aimed at softening the economic shock of the virus. These included social support, subsidies to some households, property and income tax relief for the hospitality sector, lighter bank lending regulations and greater spending on infrastructure.

The IMF said that over the medium-term Georgia needed to address its decline in revenues this year to consolidate its finances and help the country afford to spend more on education and infrastructure.

It said that the central bank’s decision to ease monetary policy in response to declining economic activity and easing inflation pressures was appropriate.

“Maintaining exchange rate flexibility remains essential to manage the shock,” the IMF said.

The ex-Soviet country of 3.7 million had reported 2,758 coronavirus cases as of Wednesday and 19 deaths, far fewer than other countries in the South Caucasus region.

The number of daily infections has started to rise in the last 10 days, forcing the government to impose some restrictions again and postpone theatre and cinema re-openings. (Writing by Margarita Antidze; Editing by Alexandra Hudson)