Georgia: Building a Framework for Greater Fiscal Resilience

The COVID-19 pandemic hit Georgia hard. Economic output fell, as mobility restrictions were implemented and tourist arrivals collapsed. The authorities responded quickly to protect lives and livelihoods. With a track record of prudent fiscal policy and the fiscal space, the government increased healthcare and stimulus spending. It stepped up its borrowing to finance the gap, pushing the external debt stock to $7.5 billion—a 31 percent increase over the previous year.

Fortunately, Georgia was prepared. With support from the Debt Management Facility (DMF), the government had already built a framework for greater resilience to unforeseen shocks. Over the six years preceding the pandemic, the country had gradually improved its debt-management capacity, processes, and institutions.

The DMF, launched by the World Bank in 2008 and implemented jointly with the IMF since 2014, helps IDA-eligible countries improve their debt management to reduce debt-related vulnerabilities and improve debt transparency.

“Our technical assistance started with an initial Debt Management Performance Assessment (DeMPA) in 2013, followed by a reform plan and several support missions for domestic debt market development,” said Lilia Razlog, a Senior Debt Specialist in the World Bank’s Macroeconomics, Trade & Investment Global Practice. The 2013 DeMPA identified several areas of weaknesses in government debt-management processes and procedures, as well as deficiencies in the managerial structure for activities involving the management of debt and guarantees.

Staff from the government’s Debt Management Office attended many DMF training programs, including managerial-level participation in DMF’s Debt Management Practitioners Program (DMPP) in 2018. These training opportunities significantly improved the analytical capacity of debt-management experts in the Ministry of Finance—particularly with respect to conducting debt sustainability analyses, analyzing the debt portfolio, and formulating debt management strategies.

In 2020, a follow-up DeMPA took stock of the reforms implemented by the authorities: it showed significant progress. Since the initial DMF engagement, Georgia had improved debt transparency with the publication of its semi-annual public debt statistical bulletin and monthly debt statistics. The government was conducting Debt Sustainability Analyses annually. It had developed and published a debt management strategy in May 2019, which provided guidance for borrowing operations and laid out measures for domestic market development. A debt management strategy update covering 2022-2025 was released in December 2021 to reflect the new policies in response to the COVID-19 related debt spike.

The State Audit Office, the supreme audit institution in Georgia, which also benefited from DMF-funded debt management training, conducted performance audits for public debt management. The debt office was restructured in line with sound practice. Cash management had improved with the establishment of a cash-management unit in the Ministry of Finance and the introduction of weekly and daily cash flow forecasts and active investment of surplus cash.

Georgia had also adopted reforms to strengthen the domestic securities market. In 2020, the government raised the equivalent of $1.8 billion in the domestic market alone—of which 88 percent involved long-term maturities. “It was very important to have a domestic market in place at the time of the crises,” said Irakli Katcharava, Deputy Head of Public Debt Management Department at the Ministry of Finance of Georgia, and the graduate from the Debt Management Practitioners Program. “With the DMF’s support in 2017 and 2019, we had already amended the regulation on domestic market issuance, and set the Market Making Pilot Program in motion to diversify the investor base and enhance secondary market liquidity.”

The pandemic’s impact on poverty and inequality will, of course, depend on the severity and duration of the crisis and the policy response. Nevertheless, having a sound public debt-management framework in place is helping Georgia build the fiscal space it needs to continue on its path toward sustainable and inclusive growth.