The Asian Development Bank (ADB) has revised the outlook of Georgia’s economic growth. According to the new report, Georgian economic growth is projected at zero in 2020, while in 2021 – it will amount to 4.5%.
“Growth is projected to decline to zero in 2020 as monetary tightening and the impact of COVID-19 constrain consumption and limit expansion in tourism and trade, before recovering to 4.5% in 2021 with higher domestic demand fueled by increased bank credit to households, increased foreign direct investment, and a rebound in workers’ remittances.
Gains in retail trade and higher government education spending are projected to boost services by 1.1% in 2020, and 6.3% in 2021, with the latter reflecting an expected recovery in tourism. Growth in industry is projected to contract to 3.1% in 2020 with a slowdown in construction and manufacturing before recovering to 2.1% in 2021 with higher mining output.
Agriculture is forecast to decline marginally by 0.7% in 2020 and expand by 0.4% in 2021 as investments in the sector strengthen. The introduction of administered prices on food, which represents 31.3% of the consumer price index, should help slow inflation to 4.5% in 2020 and 3.0% in 2021, the central bank’s target.
Fiscal policy is projected to be expansionary, as the budget deficit is projected to widen somewhat to 2.5% in both 2020 and 2021 with social spending forecast at 9.0% of GDP. This reflects phased increases in the basic pension and a gradual rise in education outlays to 6.0% of GDP, despite savings from better targeting of social insurance benefits and improved procurement practices. A revised fiscal framework should help minimize fiscal risks by including injections to state owned enterprises and liabilities to publicprivate partnerships under the overall debt ceiling of 60.0% of GDP. However, public debt is expected to increase to 48.5% in 2020 and 49.5% in 2021 in part from the need to continue financing infrastructure projects.
Georgia’s external prospects will depend heavily on developments in its trading partners. The current account deficit is projected to narrow further, to 4.4% of GDP in 2020 and 4.2% in 2021, with a continued decline in imports as much lower oil prices help trim the trade deficit by 2.5% in 2020 and 0.5% in 2021. Exports are projected to grow by 3.6% in 2020 and 11.9% in 2021, with modest domestic expansion and higher foreign direct investment raising imports by 1.1% in 2020 and 7.0% in 2021. Gross international reserves are expected to reach $3.5 billion in 2020 and $3.6 billion at the end of 2021. External debt is expected to equal 96.0% of GDP at the end of 2020 and 96.5% at the end of 2021”, the ADB’s report reads.