Georgian Economy grows slower this year
14 November, 2013
Georgian Economy grows slower this year
The projected 6% growth looks impossible for the Georgian economy this year. In June the International Monetary Fund predicted 4% growth, while the European Bank for Reconstruction and Development anticipated 3%. But recently those figures dropped to 2.5% and 2%, respectively.
Meanwhile, the latest available preliminary data from Geostat, the Georgian statistics body, reports that in the third quarter of 2013 the Georgian economy grew by only 1.3%, whereas by comparison the GDP grew by 1.7% to September of 2012.
During the presentation of the Caucasus and Central Asia Regional Economic Outlook held by IMF on November 6 in Tbilisi, Azim Sadikov, IMF Resident Representative in Georgia, underscored that weak investor confidence reflecting political and policy uncertainty, and shortfalls in government spending were two major factors that impeded the Georgian economy this year.
But there was a positive development, as exports grew by more than 24%, very likely thanks to the Russian market that opened up again to Georgia in May of this year. Though Russia’s share of Georgian exports was slightly over USD 13 million by third quarter of 2012, the figure exceeds USD 61 million according to data for the first nine months of 2013. That is an increase of over 400%.
Sadikov also indicated that Georgia is not an exception in the region in the respect that the entire CCA economy slowed its speed this year.
IMF believes the next year will be the year of recovery, and forecasts 5% growth for Georgia, but it will require restoring investor confidence and overcoming spending shortfalls, while avoiding waste. However, the strong performance of the external sector is likely to continue, supported by a gradual re-opening of the Russian market and progress toward deeper integration with EU.
“For the next year we project 5%. So we expect recovery; the key challenge to get the economy going strongly again is to revive the investors’ confidence; also there is a need to try catch up with shortfall, and keep down the spending while we are reducing waste … these are the key things in the short-term that will help growth again,” Sadikov said.
IMF approved the current fiscal policy in Georgia and recommended to government to keep this policy. But the recently created Co-Investment Fund with its USD 6 million of initial capital raises some concerns. According to Sadikov, the Fund will play a positive function only if it will be focused on co-funding large long-term investment projects. Otherwise, the Fund may become a competitor to private businesses like banks, and take clients away from the commercial banking sector.
According to Davit Onoprishvili, Head of the Finance and Budgetary Committee in Parliament, the Georgian economic slowdown started not this year or after the new power of the Georgian Dream political coalition entered office, but much earlier, in the summer of 2012, the reason being the improper economic policy of the previous government based on terror and crackdowns on business. He thinks the remaining months of this year are very likely the last months of low growth, and beginning next year the government expects the economy to grow by 5-6%.
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