Georgia’s GDP contracted by 11.5% y/y in January, deepening from 7.9% in December, according to a flash estimate from statistics office Geostat.
The contraction is almost twice the 6.1% average GDP drop in 2020 and comes against rather strict lockdown measures taken in the first month of 2021. Positive growth rates in January were seen in only a handful of sectors: information and communication, and financial and insurance activities, Geostat commented.
Georgia’s coordinating council set up to prevent the spread of the coronavirus at its February 24 meeting decided to lift a number of pandemic restrictions from March 1. In the meantime, efforts to secure a supply of coronavirus vaccines for the South Caucasus country are advancing slowly.
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.
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, Georgia’s prime minister Giorgi Gakharia resigned on February 18 after condemning an “unacceptable” court ruling ordering the pre-trial detention of opposition leader Nika Melia. On February 23, Melia was detained amid a situation in which the opposition parties have been boycotting the parliament, claiming last autumn’s general election was fixed in Georgian Dream’s favour. He was taken into custody after allegedly refusing to post bail on charges of organising and using group violence during June 2019 protests in Tbilisi, charges he claims are politically motivated.
Georgia’s new PM, Irakli Garibashvili, said in one of his first statements as head of the Georgian Dream government that snap elections—the main demand from the opposition parties—were out of the question and that “ordinary criminal” Melia belonged in jail—he made that comment despite the fact Melia has not yet stood trial.
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