Georgia Country Report Dec17 - December, 2017

December 5, 2017

Georgia, the small South Caucasus country of 3.9mn, grew by 4.9% y/y in the first half of 2017 and 4.7% in the first three quarters . The Georgian economy decelerated from 2.9% in 2015 to 2.7% in 2016 as a result of the wider economic slowdown experienced by Georgia’s main trade partners - Azerbaijan, Turkey, Armenia and Russia. Nevertheless, Georgia has been doing well compared to its regional peers and is expected to remain the fastest growing economy in the South Caucasus this year.

Poised to grow by over 4% in the next two years, the Georgian economy has attracted more foreign direct investment (FDI) compared to neighbouring countries thanks to higher overall GDP growth, business friendly policies, and the development of sectors like gas transit, real estate, transport and tourism. In September alone GDP expanded by 5% y/y.

On the political front, the ruling Georgia Dream party won the local elections held on October 21 by a landslide. Led by ex-football star Kakha Kaladze, who is now the new mayor of Tbilisi, Georgian Dream candidates won most of the mayoral seats in the country’s six largest cities with an unequivocal 50% or more of the votes. Promises to expand Tbilisi's economy by boosting tourism, simplify bureaucracy and build a new transportation network were central to Kaladze’s platform.

Georgian PM Giorgi Kvirikashvili told reporters on November 13 that Georgia’s cabinet will be reshuffled to reduce costs and improve efficiency. Four ministries - environment and mineral resources, energy, sports and youth and corrections - will merge with the agriculture, economy, culture and justice ministries.

On the economic front, Caucasus “golden triangle” cooperation stems ahead as the Baku-Tbilisi-Kars (BTK) railway line was ceremonially opened at the port of Alyat near the Azeri capital on October 30. The 826km railway connects Azerbaijan’s Caspian coast to Turkey via Georgia, and, as top officials from the participating countries stressed at the launch, will considerably cut travel time between China and Western Europe. The project has been in the making for over a decade.

Furthermore, the EBRD said in its report on November 22 that Georgia, the region’s best performing economy in recent years, needs to step up public investments, restructure public-private partnerships (PPPs) and enhance its commercial dispute resolution capacity so as to increase investor confidence in the judiciary. 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.

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