Key developments and challenges

The main challenge for Georgia is to attract private investment after the crisis. There is considerable uncertainty about the future pace of foreign direct investment (FDI) inflows – a key driver of pre-crisis growth. Therefore, it is important for the authorities to focus on structural reforms to encourage domestic savings and investment.

Further reforms are required in the financial sector to ensure continued recovery from the crisis and stable growth in the longer run. A credible shift of the monetary policy framework to inflation targeting, further strengthening of prudential policies and deepening of the local capital market are the key issues. Over time, these policies should help reduce dollarisation of the banking system.

Although the government has pursued fiscal consolidation in 2010, the overall deficit remains high and public debt has yet to stabilise. It will be important for the government to make a credible commitment to implementing a responsible fiscal policy in the future to support a recovery of market confidence.