The Economic Impact of the Covid-19 Crisis and Support from the EU Bank
THE CORONAVIRUS PANDEMIC is putting enormous pressure on healthcare systems, it is affecting the global economy in an unprecedented way, and it is leading to a downturn incomparable to any other economic crisis in recent history. It is hard to estimate the depth and duration of the recession: for every region and country, it will depend not only on the development of the pandemic, but also on specific economic features, circumstances, strengths, and vulnerabilities. This includes demographics, the level of healthcare development, the integration in global value chains, the dependence on non-agricultural commodity exports, the level of dependence on tourism, and the share of remittances in financial flows.
Georgia is an example of prudent and successful management of the virus. With containment and infection tracking measures introduced relatively early compared to other countries, Georgia displays a low infection rate and is now gradually introducing deconfinement measures. At the same time, the Covid-19 crisis is profoundly affecting Georgia’s economy. The virus caused almost entire suspension of tourism and related activities, a sector from which Georgia derives more than 30% of its GDP and 45% of its exports.
Containment measures suspended or slowed down economic activities in other sectors (for example, retail and services). Finally, yet most importantly, lower remittance inflows and weaker demand for goods and services from the rest of the region and globally are weakening Georgia’s economic position and, consequently, its fiscal situation. Even though the crisis is temporary, it requires both immediate action supporting the economy, as well as medium-term strategies for bringing the economy back on a path of resilient growth.
The early anti-crisis response of the Government of Georgia and the National Bank of Georgia in cooperation with the country’s international partners and the local financial sector is a strong foundation for economic recovery. Key actions in this regard include strengthening the healthcare system, supporting the liquidity needs of businesses– both through fiscal and regulatory measures – and continuing vital public investment projects.
In the medium term, support for new investments addressing challenges resulting from the Covid-19 pandemic, such as introducing digital solutions and increasing local production, may be instrumental in stimulating resilient growth. It is worth noting that critical reforms, like the newly adopted energy efficiency law also support a sustainable economic recovery. The European Investment Bank (EIB) is supporting Georgia’s economic recovery in all aspects, contribut- ing significantly to an unprecedented support package for the country prepared in coordination with the European Union, European governments, and European financing institutions.
In the public sector domain, EIB is reallocating available funds to support the health sector in response to the Covid-19 emergency. At the same time, EIB’s investments in core transport and municipal infrastructure continue, as does its engagement in new renewable energy and agriculture projects. EIB also continues to support Georgia’s private sector, with particular emphasis on access to finance for micro-small and medium enterprises (MSMEs), a key priority for Georgia. Emergency measures related to Covid-19will increase flexibility of existing financing for MSMEs to support working capital needs and disbursement of funds. Additionally, the recently introduced features of the InnovFin program will enable supporting working capital needs with increased guarantee rates, as well as adjusting existing SME loans to address potentially distress situations.
Adjustments may include amending repayment terms, refinancing, and bridge financing. All these measures are expected to be supplemented by the end of this year with additional financing for MSMEs with special terms and conditions available through commercial banks.