Risk Assessment Studies
Georgia

Georgia

Population 3.7 million
GDP per capita 5,014 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (f)
GDP growth (%) -6.8 10.5 10.1 5.5
Inflation (yearly average, %) 5.2 9.6 11.9 3.0
Budget balance (% GDP) -9.2 -6.5 -3.5 -2.8
Current account balance (% GDP) -12.5 -10.5 -4.8 -5.0
Public debt (% GDP) 60.2 49.7 41.3 42.0

(e): Estimate (f): Forecast

STRENGTHS

  • Tourism, agricultural, mineral and hydroelectric potential (near self-sufficiency in electricity)
  • Strategic geographical position between Central Asia, Russia, Europe and Turkey
  • International support, numerous trade agreements
  • Relatively good business environment

WEAKNESSES

  • Weak diversification of the economy, low manufacturing activity (9% of GDP in 2020) and low agricultural productivity(7% of GDP, 20% of the workforce in 2020)
  • Structural trade deficit and low export valuation
  • Highly dollarised banking system (63% of deposits and 55% of credits in 2020)
  • High poverty, informal economy and rural population
  • Political instability: pro-Western/pro-Russian division, Abkhazia and South Ossetia occupied by Russian military forces
  • Structural trade deficit and low export valuation

Risk assessment

Solid but subdued growth

After the boom in most sectors of the economy in 2022, together with the impact of Russian immigration, growth will slow in 2023. In terms of demand, final consumption (94% of GDP in 2022, at constant 2015 prices) will remain the main driver. Appreciation of the lari, as well as the easing inflation observed over several months, will have a positive effect on household demand, prompting it to gain momentum. Gross fixed capital investment (17% of GDP) will still contribute positively to GDP growth. Foreign direct investment accounted for 8% of GDP in 2022, with year-on-year growth of nearly 60%. In the first quarter of 2023, almost half of FDI came from the Netherlands and was devoted to the manufacturing sector. Net goods exports will again contribute negatively to GDP growth. In terms of supply, services (11% of GDP) should continue to benefit from Russian immigration and capital, with tourism also proving a mainstay.
On the monetary side, in May 2023, the National Bank of Georgia (NBG) lowered its key rate by 50 bp for the first time since March 2022, to 10.50%. The decision was motivated by easing inflationary pressures, particularly from imports, and the absence of second-round effects (price-wages). However, the NBG mentioned that attention should be paid to geopolitical risk. The NBG policy rate remained at 10.50% at the monetary policy committee meeting in June 2023.

A current account balance dependent on tourism and transfers from expatriates, and a reduction in the public deficit

Georgia's current account deficit halved in 2022 thanks to the rebound in the services surplus (with, in particular, the continued boom in tourism) and the dynamism of the secondary balance, driven by expatriate transfers. In 2022, Georgia's secondary balance was able to benefit from exceptional growth in expatriate transfers (+43% year-on-year), particularly from Russia (+403%), representing nearly half of transfers and almost one-tenth of GDP (all transfers representing 18% of GDP). The pace of expatriate transfers is expected to slow. We have already observed the trend since the start of the year: the amounts transferred have fallen from $317m in December 2022 to $159m in April 2023. The appreciation of the lari has helped contain the price of imports, despite high inflation. In 2023, trade in goods will remain largely in deficit (% of GDP), unlike that of services, which are being supported once again by tourism (13% of GDP in 2022), and information and communication technologies (5%). The primary income balance (composed of investment income from employee compensation) will remain slightly negative. The budget deficit should continue to narrow thanks to revenues from strong growth. The same will be true for the public debt/GDP ratio.

 

A government balancing its resolve to join the EU and its fear of angering Moscow, a pro-European population

Georgia's internal politics have been marked by tensions between the party in power since 2012, Georgian Dream (RG-GD), which won 48% of the vote and 90 seats in the October 2020 parliamentary elections, and the opposition ( whose main party is the United National Movement, having won 27% of the vote and 36 seats), which, at the time, denounced massive election fraud. The opposition also claimed election fraud during the municipal elections of October 2021 during which the RG-GD won 19 of the 20 municipalities opposing it to the United National Movement (and 47% of the votes in total). The arrest of former President Mikheil Saakashvili, returning from an almost 10-year exile (against whom lawsuits were filed for abuse of power) on the eve of the municipal elections, also fuelled opposition anger. In March 2023, protests erupted in the capital, Tbilisi, after Parliament attempted to pass a controversial (and eventually revoked) law that would have required civil organisations and the media to register as foreign agents, if more than 20% of their income derived from international sources. This law, considered similar to a Russian law adopted in 2012, would, according to the demonstrators, have brought the country even closer to Russia and thus compromised Georgia's relations with the EU – it should be noted that the government has never unequivocally condemned the invasion of Ukraine by Russia, when the population overwhelmingly supports Ukraine. According to polls, more than three-quarters (or even more than 80%) of the population is in favour of joining the EU.
Georgia applied for membership of the European Union in March 2022. In June 2022, the EU stated the country had to meet 12 conditions to qualify, including strengthening the independence of the judiciary. In a February 2023 resolution, the European Parliament expressed concern over Saakashvili’s deteriorating state of health (he was still detained in prison), and called on the Georgian government to release him, stating that the treatment of prisoners, such as the former President, is a litmus test for the Georgian government's commitment to uphold European values and its declaration of European aspirations. The European Parliament also pointed out that the oligarch Bidzina Ivanishvili, creator of the RG-GD party, played a fundamental role in Saakashvili's incarceration, acting on "personal vendetta". Several demonstrations have taken place since the beginning of 2023, requesting the government to release the former president. More generally, the population accuses the government of imprisoning opponents, silencing independent media and collaborating with the Kremlin.

 

Last updated: September 2023

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