Private Finances under Focus
09 May, 2013
Private Finances under Focus
Georgian government needs to focus on mobilization of private financial resources because attracting of Direct Foreign Investments is restricted – this is the message sent by Economic Policy Research Center, a non-governmental watchdog, through its economic outlook of Georgia for 2012 released on May 2, 2013.
The economic outlook of Georgia as a whole remains generally favorable: macroeconomic developments have been positive and inflation has subdued, mirroring the world’s slow recovery after the global financial crisis. The economy has, however,
slowed-down in 2012 and inflow of Foreign Direct Investments (FDIs) closed the year by USD 252 million or 23% drop compared to 2011. The FDIs drop was partly caused by the uncertainty surrounding Georgia’s parliamentary elections held in October of 2012. After several years of steady recovery, this is a serious concern for policy makers. Georgia’s domestic capital market is still underdeveloped, leaving economic growth substantially dependent on external sources of finance particularly the FDIs. FDI is especially important for long-term growth, as it can be directed towards financing large infrastructural projects that would otherwise be impossible to fund through the domestic banking sector, Economic Policy Research Center (EPRC) report informs. According to the report, the rippling effect of the Eurozone crisis has also caused a global downturn in investment thus restricting the pool of external resources to Georgia. Future FDI inflows will largely depend on how soon the global economy recovers and how successfully the government maintains and strengthens Georgia’s hitherto effective investment policies. Inasmuch as political factor does not wane this year due to upcoming presidential elections scheduled by fall, new government faces the challenge of mobilizing private sources of financing, since the FDIs access is limited. Therefore the governmental prognosis on attraction USD 2 billion in 2013 seems exaggerated to EPRC analysts.
According to Nino Evgenidze, Executive Director of EPRC, persistently high current account and fiscal deficit that still remains a major macroeconomic challenge was also a reason to the FDIs slow-down. One of the key factors to this double fiscal deficit is similarly persistent trade deficit equaling 24.9% of the country’s GDP in 2012. To enable the expansion of Georgian exports into new markets, particularly large and wealthy importers in the west, strict controls should be introduced to improve the quality of Georgian exports relative to the international standard, EPRC report recommends. The possible normalization of trade relations with Russia could be very helpful to this end. It may boost exports thus increase tax revenues that will mitigate Georgia’s dramatic current account deficit making 2.9% of GDP in 2012, and compensate for the ongoing Eurozone crisis’ negative effect on Georgian exports. A trade agreement with Russia should thus be vigorously pursued, EPRC believes.
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20.09.2018
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1
USD
2.6188
2.6179
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EUR
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3.0606
GBP
1
GBP
3.4414
3.4517
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