Georgian Economy Drops Speed
13 June, 2013
Georgian Economy Drops Speed
While Georgian government believes the targeted 6% of economic growth is possible this year, international rating agencies and financial institutions such as Standards & Poor’s, Fitch, European Bank for Reconstruction and Development and the International Monetary Fund lower the economic growth forecast to Georgia to around 3-4% for 2013.
After standard and Poor’s lowering the economic growth figure to 3.5% by end-M
ay of 2013 came European Bank for Reconstruction and Development (EBRD) and Fitch drawing the forecast down to 3% a week ago. International Monetary Fund (IMF) turned out more optimistic by forecasting 4% on June 10, 2013 if Georgian economy grows faster from the second half of the year reaching 8% ultimately. The first quarter’s economic growth trend going down from 2.9% in January and 2.2% and 0.4% in February and March respectively made the international organizations to be pessimistic. The trend recovered to 4.1% in April however the total figure of economic growth for the first quarter averaged to 1.9%. Georgian government expects June 15, 2013 when results of the Value Added Tax collection data for the past May will be disclosed to make decision whether or not to change the 6% forecast.
Meantime international organizations point out major factors of the economic slump in Georgia: political uncertainty following the change of government last fall plus the upcoming presidential elections scheduled this fall, unclear economic policy of government and delays in policy implementations, and regional economic context with economic slowdowns in neighboring countries particularly in Russia been the main source of remittance inflow in Georgia. The situation is expected to be improved from the second half and restoration of trade with Russia is essential to this end.
“Provided that the political situation remains stable, business uncertainty subsides and supportive economic policies are in place, the economy should grow rapidly in the second half of this year,” The IMF report informs.
According to Standard & Poor’s, aside the political factor the economic slowdown in Georgia is associated with the fairly conservative policy of commercial banks and that business in Georgia cannot understand the governmental strategy like the changes made to the labor code and the law on competition. To IMF Georgian businesses explained that announcement of major reforms [though in many cases welcome] before providing details about their content and implementation (for example healthcare reform, labor code, new investments funds as well as Partnership Fund initiated to attract more investments), has added to uncertainty over government policy. EBRD called the new investments funds “utopian” and governmental messages sent to business “misleading”. Ditrikh Muller, a co-founder of Georgian Investment Group, agrees that Georgian government lacks communication with investors and the economic initiatives are orchestrated prematurely with no detailed description of the soothe that embarrasses investors. IMF recommends Georgian government to strengthen communication of its policy initiatives and refrain from premature announcement of some policy initiatives before details are known.
“Providing detailed information about the objectives, implementation, and the timeline of new policy initiatives before announcing them to the public is needed to help restore business confidence,” IMF said.
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