Georgia Country Report Sep22 - September, 2022

September 5, 2022

The Georgian economy grew by 7.2% in Q2 and 10.5% in the first half of 2022 y/y, according to the latest National Statistics Office of Georgia data. Deputy Minister of Finance Mikheil Dundua said that Georgia achieved double-digit economic growth in the conditions of a global crisis.

The World Bank in its June issue of ‘Global Economic Prospects’ has revised its GDP growth forecast for Georgia for 2022 upwards from 2.5% to 5.5%. The Georgian economy has shown resilience to the economic shock induced by the Russian invasion of Ukraine so far, driven by the strength of the services sector, particularly in tourism, with a strong recovery in the year through July.

The International Monetary Fund (IMF) previously said that Georgia’s spillovers from the war and sanctions are expected to lower Georgia’s growth to around 3% in 2022, raise inflation, and widen the current account deficit. The outlook is subject to a higher-than-usual level of uncertainty. Georgia’s economy has proven resilient in the past, and with the support of policies under the authorities’ programme. IMF expects growth to pick up in 2023 and other key indicators to strengthen as well.

The Georgian Parliament will create five working groups to handle the conditions underlined by the European Union for granting the country membership candidate status, announced Parliament's Legal Affairs Committee on August 4.

Georgian Prime Minister Irakli Garibashvili tried to put a brave face on Georgia's failure to secure EU candidate status from Brussels, saying that the country would work towards being given the status. Georgia was not granted candidate status at the European Council at the June 23-24 summit - while allowing Ukraine and Moldova to go forward - because of the country’s democratic deficits. The European Commission said Georgia must first fulfill a number of conditions only after which can it receive candidate status. Since the country is struggling with the deadline, a review has been postponed. Protesters have been demanding the resignation of Prime Minister Irakli Gharibashvili for months.

In trade and transport related news, the Georgian government will ban the export of wheat and barley for a year starting from July 4, 2022. The reason is to ensure food security on the domestic market given the Russian invasion of Ukraine, according to Minister of Environment and Agriculture Otar Shamugia.

The Trans-Caspian International Transport Route (TITR) is gaining importance as trade through its member states is growing amid the necessity for more trade route volume that bypasses heavily sanctioned Russia.

Prime Minister Irakli Garibashvili said the profit of Georgian Railways had hit a "record high" of GEL161mn ($59 mn) in the first half of the year. During the August 15 cabinet meeting, the prime minister announced that the increased freight traffic through Georgia had increased revenues for the company.

Georgian Railways has registered the highest rail cargo volume in the past seven years, the country's national railway company reported.
The railway transported 6.8mn tonnes of cargo during the first half of the year, which is a 13.3% increase y/y.

Georgia exported a record $540mn worth of goods in July, marking a 40% y/y increase, Irakli Garibashvili announced. On August 15, during a cabinet meeting, the PM referenced the Georgian external trade turnover that amounted to $10.18bn between January-July 2022, making a 35.3% y/y increase.
The value of exports rose by 36.3% during the first seven months of the year to $3.09bn. Imports also grew by 34.8% y/y, amounting to $7.08bn.
The trade deficit reached $3.98bn, while the share of trade turnover hit above 39%.

Foreign direct investment in Georgia in the first quarter of 2022 amounted to $568.2mn, which is $435.7mn more than in the same period last year, Geostat reported, citing preliminary data. Thus, the figure increased by 4.3 times. Spain was the top contributor to FDI, followed by the United Kingdom.
FDI amounted to $1.242bn in 2021, making a two-fold increase y/y. UK is Georgia’s largest foreign direct investor at 48.6% ($603.6mn).

In Georgia, revenues from international visitors are running at a record high in 2022. According to the National Bank of Georgia, the country received $476mn in income from international visitors in July, which is almost $270mn more y/y. For the first time after the pandemic, the revenue from travel in January-July exceeded $1.6bn, constituting 87.4% of the figures for 2019.

Money transfers from Russia to Georgia soared 6.5 times in Q2 to $678mn, equivalent to 3.6% of the country’s GDP recorded last year, the National Bank of Georgia (BNM) reported. The spike in financial flows can safely be attributed to the flow of migrants from Russia who have found at least temporary shelter in Georgia from consequences of the Ukraine war. The macroeconomic impact made by financial flows of such a magnitude cannot be ignored. It should be seen in retail sales, GDP growth and exchange rate.

Georgian inflation hit 12.8% in June, according to the Geostat. Compared to the previous month, consumer prices rose by 0.2%. The annual inflation was mainly exerted by price changes in transport, food and non-alcoholic beverages and energy. TBC Bank sees year-end inflation at 7.4% (down from 8.5%).

The Monetary Policy Committee of the National Bank of Georgia (NBG) at its meeting on June 22 left the refinancing rate unchanged at 11%. In its decision, the NBG said that "high inflation and inflationary risks remain an urgent global challenge". The bank said sanctions imposed on Russia in response to aggression against Ukraine and delays in deliveries, as well as sharp restrictions on exports from Ukraine due to the war, have significantly increased prices for food, raw materials and energy on world markets.
Georgia’s central bank is in a position to adopt a more dovish position and will perhaps cut the refinancing rate from 11% currently to 10.25% by the end of the year, according to CEO of Georgian bank TBC.

The unemployment in Georgia fell to 18% in Q2, according to Geostat. The number of hired employed increased by over 4.4%, reaching 867,900 individuals.

In bank related news, Georgian commercial banks' financial reports indicate that 14 banks in the country together earned a net profit of GEL836mn ($285mn) in the first half of 2022.
According to the Banking Association of Georgia, 95% of these profits were attributed to the country's two largest banks, TBC and Bank of Georgia.
In 1H22, the banks received interest income of GEL2.7bn ($919mn), most of which stemmed directly from loans made to citizens and businesses.

Commercial banks in Georgia loaned GEL43.65bn ($15.7bn) and received deposits of GEL38.27bn ($13.8bn) in June, according to data from NBG. The volume of loans grew by 18.7% y/y (+2.1% m/m), while deposits accelerated by 17.4% y/y (up 3.8% m/m).
Georgia's TBC Bank maintained strong growth in the first half despite a challenging geopolitical environment.
TBC reported a net profit of GEL235mn ($87mn) in the second quarter to 30 June, up 5% from the first quarter of the year, which according to the bank's statement, was due to substantial income generation.

On the political front, Georgian Dream party MPs Sozar Subari, Mikheil Kavelashvili and Dimitri Khundadze resigned the party and parliament at the end of the majority meeting on 28 June. According to the former MPs, “there are great powers” who want to organise a revolution in Georgia, “change the government elected by the people” and replace it with people who “are directly responsible for the numerous crimes committed in 2004-2012”, hinting at the opposition United National Movement (UNM).

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