Russia’s economic crisis affects Georgia
17 December, 2015
Russia’s economic crisis affects Georgia
Report-2015: Russia’s Crisis Stalks Europe’s Periphery released by the European Bank for Reconstruction and Development (EBRD) is the first of its kind in over a decade. It looks at the health of the financial system of Georgia, among other countries in the region; provides analysis of Foreign Direct Investment (FDI) in Georgia; finance available to small and medium enterprises; equity, debt and cross-border finance patterns.

Read the Georgian version of the article on Voice of America website.

As Bruno Balvanera, EBRD
Director for Caucasus, Moldova and Belarus explains, Russia’s economic crisis had a lot to do with what happened in Georgia in 2015. “We all know that Russia is going through a difficult economic cycle,” he said, explaining that it was caused by the decrease in oil prices as well as the economic sanctions, imposed by the West. Russian ruble has devalued by 100 percent over the last couple of years. It affected Ukraine, countries of the Caucasus, other post-Soviet states, Turkey and even Western Europe.

“Georgia is one of the countries that have suffered. On one hand, the exports that they used to have to Russia have dropped. One the other hand, the remittances that they were receiving from the Georgian workers in Russia have also decreased. All the countries neighboring Georgia have experienced devaluation of their currencies.

By devaluing the lari by 40 percent, Georgia tried to catch up competitively to its key trade partners. This is good, but the bad news is that about 60 percent of loans in the country - either to the households or the companies - are in USD. So now the companies and the households owe 40 percent more in GEL than they originally did.”

The good news, according to Mr. Balvanera, is that the worst for Georgia is over now. The lari has found a stable level; Georgia has contracted its imports significantly and is trying to maintain its export and competitiveness.

“In the particular case of Georgia, we need to remember that it is a relatively small economy, integrated into the region. I think it needs to continue expanding its trade activities with Azerbaijan, Armenia, Russia and Turkey. I think that now there is a window of opportunity for Georgia - with the sanctions between Russia and Turkey - to be able to export tomatoes, cucumbers and other products that used to be imported from Turkey to Russia.
On the other hand, what we need to focus on in terms of Georgia right now is the cycle of elections. We are going to have elections next year and I think it is very important to make sure that the environment remains predictable, that we have the rule of law and that in general, the government does everything to attract and maintain the investments into the country.

For Russia, there is no positive outlook in the near future - neither on the price of oil nor on lifting of the economic sanctions. It means that the countries in the region, Georgia among them, have to adapt to this new economic environment,” said Bruno Balvanera to Voice of America.

According to him, Georgia is the country that has “advanced the most in terms of reforms” and is “better equipped to go through the crisis”. EBRD remains positive in the medium- to long-term outlook for Georgia. For the next few years, economic growth forecast is 2.5 present, almost the same as for other neighboring countries, including Turkey, which has a growth forecast ranging from 2.5 to 3 percent.

By Maia Kay Kvartskhava, Voice of America

Read the Georgian version of the article on Voice of America website.
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