Population 4.498 million
GDP 15.803 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
6.3 |
7 |
6.5 |
5.5 |
| Inflation (yearly average) (%) |
7.1 |
8.5 |
0.2 |
5.5 |
| Budget balance (% GDP) |
-6.6 |
-3.6 |
-3.5 |
-3 |
| Current account balance (% GDP) |
-10.3 |
-11.8 |
-12.6 |
-11.2 |
| Public debt (% GDP) |
39.2 |
33.9 |
33.8 |
32.1 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Support of international financial aid
- Strategic geographical position (transit point for oil and gas from the Caspian sea)
- Favourable policy towards foreign investors
WEAKNESSES
- Weak economic diversification
- Structural current account deficit
- High poverty and unemployment in urban areas
- Persistent tensions with Russia
- Internal political uncertainties
Risk assessment
Growth very dependent on external conditions
Activity will continue to be adversely affected by a still weak external environment in 2013. Weak European growth will affect foreign trade, the contribution of which to growth will be negative. Private consumption will remain the main engine of growth, benefitting in 2012 from the fall in raw materials and food prices, due to the lifting of Russian and Ukrainian embargos on wheat in 2011, which contributed to a sharp fall in inflation. The Central Bank had softened its monetary policy to boost domestic demand and thus help avoid deflation. But after 10 successive key rate cuts since July 2011, the trend is likely to be reversed. The cereal harvests of the CIS countries were badly affected by drought, leading to a return of inflationary pressures in 2013, which also raises concerns over a decline in transfers from expatriate workers (particularly from Russia), which account for 10% of GDP. Finally, the financial sector, construction, manufacturing and tourism will perform well, continuing the trend of 2012.
The financial situation remains weak
Weak exports have led to a significant trade deficit and accordingly a current account deficit that foreign direct investments and transfers only partially cover. Consequently, international financial aid is essential to meet the economy’s financing needs, The IMF renewed its Stand-By Agreement in March 2012 for a period of 2 years, while the first repayments under the preceding agreement began in the same year. As for public finances, the primary balance is in surplus, a sign of good control of public finances, which are set to improve thanks to more efficient tax collection. Finally, the banking sector suffers from a still high level of non-performing loans and high exposure to exchange rate risk due to dollarisation of loans and deposits of around 70%. However, sustained private deposits boosted foreign exchange reserves in 2012 assuring the stability of the lari in 2013.
A still risky geopolitical environment
Until the October 2012 legislative elections, the Georgian regime was marked by high concentration of power in the hands of President Mikheil Saakashvili. Brought to the leadership of the country following the 2003 “Rose Revolution”, the current president was re-elected for a second term in 2008. The parliamentary elections brought about a change of power with the victory of the opposition coalition, the “Georgian Dream”, led by the influential businessman Bibzina Ivanshvili, who was for this reason named as Prime Minister. These elections assume a particular importance because of the constitutional change due to come into force with the 2013 presidential elections, increasing the powers of the Parliament. The new majority must, however, succeed in uniting a disparate coalition bringing together all the opponents of the president’s regime to avoid political deadlock. The formation of this disparate alliance was actually possible only thanks to the preparation of a conciliatory programme. The distribution of power will remain uncertain until the presidential elections. Tensions could again emerge from the co-habitation with President Mikheil Saakashvili, who, under the Constitution, cannot seek a third 5-year term, especially since the new government has begun a wave of arrests of former political and military leaders, now making up the opposition, provoking the anger of international institutions. Externally, Georgia finally withdrew its veto on Russia’s membership of the WTO in November 2011. This move was made possible following the adoption of an agreement on the intervention of a neutral private company controlling the trade borders between the separatist regions of South Ossettia and Abkhazia. However, the risk of a new confrontation between the two countries remains significant. Georgia has become the biggest non-member contributor to NATO before Australia. Prime Minister Bidzina Ivanishvili wants to join the organisation, which could infuriate Russia. Finally, the Georgian business climate is one of the most favourable in the world, ranked 9th by the World Bank.
