OREANDA-NEWS. A mission of the International Monetary Fund (IMF) visited Georgia during November 1-9 to assess recent economic developments and prospects for 2008, the IMF press service reports. The mission met with senior government officials and representatives of the private sector.

Georgia's economic performance continues to be strong, but signs of overheating are beginning to emerge. Economic growth during the first six months of 2007 was 12.5 percent, which is impressive given the external shocks associated with Russia's economic embargo along with higher energy and food prices. Growth for 2007 as a whole will likely be in the range of 12-13 percent.

Georgia's strong economic growth continues to be driven mainly by private capital inflows, which include a large element of foreign direct investment. It seems likely that private capital inflows will exceed US$2 billion in 2007, although recent political developments add considerable uncertainty to the projected volume of inflows for the remainder of this year and 2008.

Evidence of overheating can be seen in the inflationary pressures that are emerging. Twelve-month inflation was 11.2 percent as of end-October and it will be difficult to keep inflation in single digits for 2007 as a whole. While the rises in certain international commodity prices (including oil and food) have contributed to inflationary pressure in Georgia, the very rapid rise in broad money has also played a significant role. It is, therefore, important that greater efforts be made to control liquidity and, in turn, the growth of monetary aggregates. For 2008, the mission recommended that the authorities target single-digit inflation.

Consequently, and assuming that the considerable volume of capital inflows will continue, the mission stressed the importance of (i) allowing a greater role for market forces in determining the nominal exchange rate; (ii) implementing a tighter fiscal stance in 2008 and; (iii) pursuing a more proactive monetary policy to manage liquidity.

An IMF mission plans to visit Tbilisi again in the first quarter of 2008 to conduct discussions for the annual Article IV consultation and the first post-program monitoring report.