Georgia Country Report Dec20 - December, 2020

December 4, 2020

Georgia, which largely managed to escape the first wave of the pandemic, has now been reporting high numbers of new cases. Georgia, despite its small population of around 4mn, reportered 3,801 new cases of coronavirus in a 24-hour period on November 26,equivalent to 0.86 per 1,000 residents. The infection rate has been at the same high level for several days.

The government of Georgia has imposed a set of tight restrictions to curb the spread of coronavirus. They will apply between November 28 and January 31, and will run in tandem with a new assistance programme to provide both social and business support. According to Prime Minister Giorgi Gakharia, the restrictions will hit GDP to the tune of 0.7%-0.8%.

Gakharia announced a fourth economic support package for the restricted period worth Georgian lari (GEL) 1.1bn ($330mn). It will be financed from $1.5bn of loans signed up to by Georgia to mitigate the effects of the health and economic crisis.

Georgia faces a sharp plunge in international tourism revenues and subdued external demand. Across August and September, Georgia's tourism revenue shrunk by $700mn compared to the same period of last year. The central bank attempted to maintain balance in the foreign exchange market by selling FX from reserves it built up to be robust, but it is hard to offset such a deep drop in inflows.

Georgia’s GDP contracted by 3.9% y/y in October, following the annual decline of only 0.7% y/y seen in September, and the double-digit plunge seen in Q2, according to estimates issued by statistics office Geostat. The country’s economy posted a modest 2.2% y/y advance in Q1 but suffered a 5.8% y/y contraction in H1.

The International Monetary Fund (IMF) in November maintained its 5% GDP decline forecast for Georgia in 2020 issued in October, but revised downwards its forecast for the recovery next year to 4.3% from 5%, citing the effects of the Nagorno-Karabakh conflict on the region and the rising number of coronavirus (COVID-19) cases in Georgia.

The European Bank for Reconstruction and Development (EBRD) on October 1 predicts Georgia’s economy will contract by 5% this year given the impact of the coronavirus (COVID-19) pandemic on its tourism industry. The country’s economy will return to the level of 2019 in the second quarter of 2022, under the development bank’s revised scenario.

Meanwhile, the Asian Development Bank (ADB) in its mid-September update sees Georgia’s GDP to remain unchanged with a 5% GDP reversal expected. The ADB on October 29 approved a $200mn policy-based loan to help restore parts of Georgia's economy impacted by the coronavirus (COVID-19) crisis by addressing challenges in the country's public finance management and social security systems.

The IMF said that Georgia’s current account gap would double to 10% of GDP this year amid weak tourism revenues—since then the recovery outlook for the sector has deteriorated. Developments have put further pressure on the public deficit, seen in April by the IMF as heading for 8.5% of GDP.

In response to declining economic activity and easing inflation pressures, the National Bank of Georgia (NBG) on October 28 kept its key refinancing rate at 8%. The price dynamics in recent months were in line with forecasts, NBG said, with inflation continuing to decline, reaching 3.8% in September.

The central bank also stated that inflation, driven downward by weak aggregate demand, will adhere to a declining trend and remain close to the target level in 2021. Periodic currency interventions by the national lender would continue, it added. The central bank has emphasised that its monetary policy will remain tight in order to reduce inflationary expectations and return the inflation target to 3% in the first half of 2021.

On the political front, Georgian Dream, the ruling party of oligarch Bidzina Ivanishvili, was on November 21 declared the outright winner of the second round of Georgia’s parliamentary elections after its candidates won all of the 17 seats subject to runoff voting as the opposition went ahead with a boycott of the poll.
A third round of negotiations involving foreign ambassadors, Georgian Dream and the opposition will take place in coming days in a bid to resolve the dispute over claimed vote rigging that has seen the opposition parties announce a boycott of the legislature.


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