Page 12 - GEORptDec17

and enhance its commercial dispute resolution capacity so as to increase investor confidence in the judiciary.
According to the report, Georgia's macroeconomic performance has improved, with GDP growth accelerating to 4.9% y/y in the first half of 2017 thanks to growth in the hospitality industry, construction and financial intermediation. Economic growth is expected to remain vigorous - forecast to average 4.5% in 2017 and 2018 - though problems persist. Foremost among them are the country's external and fiscal deficits, which were high at 12.8% and 4.2% of GDP at end-2016, respectively, but which are sustainably financed from foreign direct investment and borrowing from international financial institutions on favourable terms.
Armenia
Armenia has seen some progress as far as fiscal consolidation, banking sector stability and economic growth go, but the report says it also needs to focus on reforms in 2018. Specifically, the EBRD report recommends that policies should be aimed at creating more fiscal space for tackling social and infrastructural challenges; that a new framework for PPPs be developed in order to align it with international standards and attract more such projects; and that the operational environment in the banking sector be further improved, particularly by enhancing supervision to avoid deterioration in underwriting standards.
Boosted by a recovery in remittances and export growth, the Armenian economy rebounded from almost flat growth in 2016 to 5.9% y/y in the first half of 2017. The government has introduced an ambitious reform programme for 2017-2022 that is to tackle embedded problems related to governance, the judiciary, foreign policy and defence.
Azerbaijan
Oil-rich Azerbaijan has been the worst performer in the region in recent years due to the drop in oil and gas prices and its high reliance on exports of these commodities for the state budget and economic output. However, the recession has gone from a 3.1% contraction in 2016 to 0.6% in the first nine months of 2017.
The report says that following a banking sector crisis this year, which centred around state-owned International Bank of Azerbaijan, the authorities should focus on privatising the lender in 2018 in order to eschew fiscal costs from rescuing it in the future; on "vigorously" implementing reform roadmaps that were passed in 2016-2017 to enhance taxpayer compliance and curtail the informal economy; and on bringing down inflation while maintaining exchange rate flexibility.
The Azerbaijani authorities appear to be aware of the issues that the EBRD report brings up. In an interview on November 22, Elman Rustamov, the central bank governor, said that tackling inflation is his institution's main priority looking ahead. Consumer prices have been growing in the double digits since the economic crisis prompted a steep depreciation of the local currency in 2015. In the first 10 months of 2017, consumer prices increased by 13.7% y/y, according to the national statistics agency.
12 GEORGIA Country Report December 2017 www.intellinews.com