Georgia Report Country Feb21 - February, 2021

February 4, 2021

Independent university-based economic think tank ISET Policy Institute (ISET-PI) expects GDP annual growth in 2020 to be -5.5%, but the impact of the coronavirus lockdown in December and January might mean that the forecasts need to be revised downwards further. Recently, Geostat released its preliminary estimate for Q3 GDP growth in Georgia at 5.6%, 0.5pp less than what was forecast by ISET-PI.

The first wave of the coronavirus health crisis was almost entirely avoided by Georgia with well coordinated measures in the spring of 2020, though at the expense of economic growth. However, the pandemic exploded in November-December in Georgia, straining the economy further. On the upside, the country has received sufficient financing ($1.5bn, equivalent to 9% of GDP) from donors to keep the exchange rate in check and address expected inflationary challenges.

A quick resumption of the global tourism industry and the normalisation of relations between the ruling and opposition parties are the main elements that would in coming years address the damage inflicted on Georgia’s economy.
International flights will resume in Georgia starting February 1, Georgian economy minister Natia Turnava has announced, stating that all airlines that have already operated on, or plan to enter the country's aviation market in the future, will be able to operate regular flights.

Deputy Prime Minister Maia Tskitishvili announced on January 22 that certain COVID-19 restrictions would be extended in some of the largest cities through March 1, while rules would be eased as planned in some others.
The nationwide coronavirus curfew – which runs from 21:00 to 05:00 – will be prolonged to March 1. Public transport will remain closed in the capital Tbilisi, as well as in the large cities of Rustavi and Kutaisi until that date as well.
From February 1, a wide array of shops and shopping malls will reopen in the cities, while both open and closed marketplaces will return to operation starting February 15.

The massive disruption caused to Georgia’s tourism industry by the pandemic has exposed Georgia to major balance of payments issues: the current account deficit doubled to more than 10% of GDP in 2020. The BoP issues have passed through to the exchange rate and the local currency, the Georgian lari (GEL), in 2020 lost 13%. The National Bank of Georgia (NBG) has been substituting, by direct interventions, the lost billions of euros worth of tourism revenues with the government’s borrowed money or money received as grants from international finance institutions.
At the same time, subdued economic activity (the World Bank calculates Georgia’s GDP contracted by around 6% in 2020 in the January edition of its Global Economic Prospects) and one-off public expenditures on social and health purposes exerted pressure on the public budget in 2020, which soared fivefold to over 8% of GDP in the year. The pressure was also felt in public debt. It neared 60% of GDP.

Meanwhile, Georgia’s domestic exports, which exclude exports of goods that are re-exported, increased by 3.5% y/y in 2020 to more than $2.4bn, driven by exports of metal ores to China, according to statistics office Geostat. Direct exports have now been on the rise for four years, moving up 50% since 2016. Total exports in 2020, however, contracted by 12% y/y to $3.34bn.

On the political front, Bidzina Ivanishvili, billionaire founder and chairman of Georgia’s ruling party Georgian Dream and the dominant politician in the country for the past decade, announced his retirement from politics.
Ivanishvili has quit once before, several years back, before returning to renew his part in Georgia’s always heated political battle, so many sceptics will expect him to return to politics once again.
Irakli Kobakhidze, who currently serves as executive secretary of Georgian Dream, is expected to replace Ivanishvili as party chairman.

Also seemingly bowing out of Georgian politics, at least on a de facto basis, is ex-president Mikhael Saakashvili, who, with his United National Movement (UNM), failed time and time again to knock Ivanishvili off his perch. His role in the general election proved divisive among some of the opposition. Saakashvili’s credibility and support among voters has also faded although the UNM remains the leading opposition party in Georgia.

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