2020, with output surpassing pre- COVID-19 levels by late-2021. Economic GEORGIA Key conditions and recovery also supported a reduction in poverty, with projections suggesting a de- challenges cline to pre-pandemic levels in 2021. However, the recovery was uneven, with Table 1 2021 Georgia has had a successful devel- output in certain sectors, such as hospi- Population, million 3.7 opment record, underpinned by pru- tality, remaining considerably below pre- GDP, current US$ billion 18.7 dent economic management, over the pandemic levels. The fifth wave of the GDP per capita, current US$ 5030.3 past decade. Growth averaged 4 per- COVID-19 pandemic abated in late Feb- a 4.2 International poverty rate ($1.9) cent per annum between 2011 and ruary, with new cases falling to 6 percent a 17.0 2021. The poverty rate measured by of peak levels on March 10th. Lower middle-income poverty rate ($3.2) a 46.6 the international upper-middle-income Inflation remained elevated in 2021, aver- Upper middle-income poverty rate ($5.5) Gini index a 34.5 line ($5.50 per capita per day, 2011 aging 9.6 percent and reflecting higher School enrollment, primary (% gross) b 99.4 PPP) declined from 59 percent in 2011 commodity prices and pass-through from b 73.8 to 42 percent in 2021. earlier depreciation. Food and fuel prices Life expectancy at birth, years Nevertheless, critical structural challenges contributed over five percentage points to Total GHG Emissions (mtCO2e) 16.3 remain, particularly weak productivity overall inflation. In response, the National Source: WDI, Macro Poverty Outlook, and official data. and the creation of high-quality jobs. Many Bank of Georgia (NBG) tightened mone- a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy Georgians remain in rural areas engaged tary policy by 250 basis points in 2021. (2019). in low productivity agriculture. Human Foreign trade increased with the deficit capital outcomes remain weak, with poor widening in 2021. Exports grew by 27 per- learning outcomes and a lack of linkages of cent yoy and imports by 25 percent yoy The Russian invasion of Ukraine will ad- education to private sector needs. as the trade deficit widened by 26 percent versely impact Georgia’s economy. The In addition, Georgia’s trade openness, yoy. Still, a gradual recovery in tourism and reliance on income from tourism, and substantial transfers from abroad impact is felt through trade, remittances, make it vulnerable to external and global helped narrow the current account deficit. FDI, commodity prices, and logistics. shocks. High dollarization and persistent The banking sector remained healthy. The This follows a robust recovery from the reliance on external savings further am- sector’s return on assets (ROA) and return pandemic in 2021, with the economy plify risks. Still, the swift post-pandemic on equity (ROE) had improved by end-Jan- rebound has demonstrated the growing uary 2022 to 4.2 percent and 32.6 percent, growing at 10.4 percent and surpassing maturity and resilience of Georgia’s eco- respectively. Non-performing loans re- its pre-COVID output. The poverty im- nomic institutions. mained low at 2.3 percent. pact is expected to be significant and fis- The fiscal deficit narrowed in 2021 to 7.1 cal pressures from rising social assistance percent of GDP (excluding sales of non-fi- are expected to increase. nancial assets), from 9.8 percent in 2020, Recent developments and in line with the plan to return to deficit levels prescribed by the fiscal rule (around GDP increased by 10.4 percent in 2021 3 percent of GDP) by 2023. Public debt to following the 6.8 percent contraction of GDP declined to 52 percent of GDP as of FIGURE 1 Georgia / Real GDP growth and contributions to FIGURE 2 Georgia / Actual and projected poverty rates and real GDP growth real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 15 70 14000 10.4 10 60 12000 4.8 4.8 5.0 5.5 5.0 5 2.9 2.5 50 10000 0 40 8000 30 6000 -5 -6.8 20 4000 -10 10 2000 -15 2016 2017 2018 2019 2020 2021e 2022p 2023p 2024p 0 0 Gov. consumption Net Exports 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Investments Prv. Consumption International poverty rate Lower middle-income pov. rate GDP growth Upper middle-income pov. rate Real GDP pc Sources: Geostat and staff estimates. Source: World Bank. Notes: see Table 2. MPO 17 Apr 22 end-2021, considerably below the 62 per- 20 percent of total remittances. Those are Due to higher commodity prices and re- cent registered in 2020, reflecting the at risk of declining sharply because of gional supply disruptions, inflationary strong GDP recovery and the strengthen- economic contraction in the host coun- pressures are likely to increase. This may ing of the lari. tries, depreciation of the ruble, and chal- be mitigated partly by long-term fixed- lenges in conducting payment transfers price contracts for gas supply and a shared from Russia. border with Russia that will maintain basic Lastly, elevated commodity prices will al- supply flows. On the upside, recent devel- Outlook so affect Georgia. Oil and food prices opments provide an opportunity for Geor- have increased sharply since the begin- gia to strengthen the transit potential of the The war in Ukraine is likely to impact the ning of the war due to uncertainty and Caucasus Transport Corridor. Georgian economy adversely through sev- disrupted commodity supplies from Rus- The conflict in Ukraine will also likely eral channels. sia and Ukraine. have significant impact on poverty and The first channel is goods trade. Both Rus- These impacts will cause a slowdown in vulnerability through the tourism, remit- sia and Ukraine are among Georgia’s top growth, higher inflation, and widening ex- tances, and higher energy and food prices 10 trading partners and a key destination ternal balances. Georgia’s growth forecast (especially wheat) channels. for exports, including wine and beverages. for 2022 has been downgraded to 2.5 per- Georgia is well placed to manage the eco- There is limited potential to divert some of cent from 5.5 percent projected pre-war, nomic fallout of the war. Buffers remain the affected exports to alternative markets with considerable scope for further down- reasonable; the macro-financial frame- in the short term. In addition, Georgia is grades if the war continues for much work is credible; and the banking sector reliant on Ukraine and Russia for key im- longer. The baseline outlook envisions is entering the crisis in relatively strong ports such as cereals. growth recovery from 2023 onward, as eas- shape, albeit with the vulnerability of The second key channel is tourism. The ing monetary policy, recovery of tourism, high dollarization. Fiscal discipline has expected dramatic drop in the arrival of and the restoration of economic links are been maintained over the past decade, Russian and Ukrainian tourists, who to- partly offset by the gradual withdrawal of although planned post-COVID consolida- gether accounted for 21 percent of vis- the fiscal stimulus. tion may decelerate due to the economic itors in 2021, will put further strain on On the external side, due to weaker ex- slowdown. Still, government deposits are a sector that is still reeling from the ports and higher import prices, the current sizeable, and debt is likely to remain be- COVID-19 pandemic. account deficit is expected to widen. Lari low the 60 percent statutory level under The third channel is remittances, with volatility has also increased following the the fiscal rule. Russia and Ukraine accounting for over onset of the war. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.0 -6.8 10.4 2.5 5.5 5.0 Private Consumption 7.2 8.8 8.7 3.0 3.8 4.8 Government Consumption 5.7 7.1 7.7 -4.7 6.0 2.2 Gross Fixed Capital Investment -0.1 -16.5 -7.6 -4.6 -0.5 2.2 Exports, Goods and Services 9.8 -37.6 30.5 -4.0 11.0 13.0 Imports, Goods and Services 6.6 -16.6 12.8 -5.0 5.0 9.0 Real GDP growth, at constant factor prices 5.1 -6.6 10.3 2.5 5.5 5.0 Agriculture 0.7 8.1 0.1 3.0 5.0 4.0 Industry 2.7 -6.8 5.9 2.0 5.0 4.0 Services 6.3 -8.1 12.9 2.6 5.7 5.4 Inflation (Consumer Price Index) 5.0 5.2 9.6 11.0 6.6 3.8 Current Account Balance (% of GDP) -5.5 -12.4 -10.5 -13.0 -9.6 -8.2 Net Foreign Direct Investment (% of GDP) 6.0 3.5 5.9 3.9 5.8 6.8 Fiscal Balance (% of GDP) -3.4 -9.8 -7.1 -4.7 -3.6 -3.0 Debt (% of GDP) 41.8 60.1 49.4 48.8 46.4 46.2 Primary Balance (% of GDP) -2.2 -8.2 -5.8 -3.3 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 3.8 4.2 3.4 3.2 2.9 2.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 14.8 17.0 14.1 13.9 12.1 10.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 41.9 46.6 40.6 39.8 36.4 33.3 GHG emissions growth (mtCO2e) 1.6 -7.5 2.4 9.0 0.8 -2.9 Energy related GHG emissions (% of total) 52.9 49.2 49.8 53.5 53.6 51.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-HIS.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 18 Apr 22