The World Bank continues to contribute to Georgia’s efforts to achieve a green, resilient, and inclusive recovery from the pandemic.
The World Bank was one of the first international financial institutions to extend support to Georgia at the onset of the Covid-19 crisis by rapidly mobilizing a robust financial package to help the Government to mitigate the pandemic’s health and social impacts and to support the vaccine rollout across the country.
Additionally, in order to help the jobs agenda and to boost the digitalization of Georgia’s business sector, the World Bank has provided support to over 6,000 micro, small, and medium-sized enterprises that were the hardest hit by the pandemic. The World Bank has also extended direct budget support to the Government to help reinforce macroeconomic stability and bolster social protection and other measures designed to help the citizens of Georgia.
Amid a pandemic that has reinforced the critical importance of digital technologies and connectivity, the World Bank introduced the Log-In Georgia Project, which will connect up to 500,000 people residing in over 1,000 villages in the mountainous and remote regions to high-speed affordable broadband internet, granting access to digital financial services, e-commerce, e-government services, remote learning, and telemedicine and boosting the digital transition of the country overall.
The Bank has also been supporting Georgia’s commitment to the future generation and human capital development though the ongoing Innovation, Inclusion and Quality Project (I2Q), which aims to help Georgia to develop the human capital necessary to narrow the skills gap between learning outcomes and labor market expectations. The project will expand access to preschool education and improve the quality of the learning environment, including support for 475 schools by equipping them with projectors and putting computers in every classroom from grades 1 to 9. To support Georgia’s broader efforts in human capital development, the World Bank has engaged with the Government to implement a rigorous program that from 2022 onward will drive greater fiscal efficiency by ensuring quality, inclusion, and equity in service delivery across the human development sectors.
Overall, through a number of financial, technical, and advisory services, the World Bank continues to support critical economic reforms in Georgia that are aimed at enhancing competitiveness, developing human capital, strengthening institutions and vital infrastructure, improving connectivity and regional integration, boosting innovation and digital transformation, and ensuring green and resilient growth.
Georgia 2020
Population, million 3.7
GDP, current US$ billion 15.9
GDP per capita, current US$ 4,275
Life Expectancy at birth, years 73.3
Georgia’s economy expanded rapidly during the pre-Covid period, growing at a robust annual average rate of 5% from 2005 to 2019. Rapid growth contributed to the halving of the national poverty rate between 2007 and 2019. Responsible macro policies, intensifying global integration, sound public investments, an attractive business environment, improving governance, and rising public spending underpinned the progress.
The country has a shared consensus on national priorities, including participation in Euro-Atlantic integration, more efficient government, stronger growth, and a better functioning welfare state. This paved the way for the signing of an Association Agreement with the European Union (EU) in 2016, including a Deep and Comprehensive Free Trade Area preferential trade regime. Free trade agreements with major trade partners, such as the EU and China, position Georgia well to attract foreign direct investment (FDI).
However, years of sustained growth had a limited impact on quality job creation, and many Georgians continue to rely on low-productivity employment, especially in agriculture and the informal sector. Export volumes have increased but exports remain unsophisticated, and firms face low growth and survival rates.
These outcomes indicate an incomplete structural transformation and an economic divide among regions. Education outcomes remain poor, and workers are generally not equipped with the skills demanded by employers. The tense political environment is also a concern for the private sector.
The Covid-19 pandemic reversed some of Georgia’s gains. After the country achieved early success in containing the spread of the disease, infections surged in late 2020, and by the summer of 2021 Georgia had one of the world’s highest infection rates per capita. Economic output fell, contracting by 6.2 % in 2020, as mobility restrictions were implemented and tourist arrivals collapsed. Despite a robust fiscal response, estimated at 7.5 % of GDP, close to the regional average for Europe and Central Asia, the poverty rate at the international upper-middle-income poverty line ($5.50 per capita per day) rose from 42 % in 2019 to an estimated 46.6 % in 2020.
Recent Economic Developments
The Georgian economy grew faster than expected in 2021, with output expanding by 12.0 % year-on-year (y-o-y) during January-August, as pandemic-related restrictions were gradually eased. Economic acceleration – evident from rising mobility, trade volumes, tax collection, credit growth, and tourism revenues – returned the GDP to pre-COVID levels. However, the labor market has been slow to recover; the unemployment rate remained high at 22.0 % in the first half of 2021 as compared to 18.3 % in the first half of 2020 and 17.3 % in 2019.
Repeated waves of new Covid-19 infections threaten Georgia’s recovery. The number of reported cases per capita was once again among the highest in the world, with recovered cases reaching 15.5 % of the population. Vaccination coverage has risen, but only 28 % of the adult population had been fully vaccinated by end-September.
Driven by rising global food and oil prices and pass-through from the earlier depreciation of the Lari, the inflation rate spiked to 12.8 % y-o-y in August, its highest level in over 10 years. In response, the central bank has increased its policy rate by a cumulative 200 basis points since March 2021 to 10 %.
The current account deficit remained high at 9.2 % of GDP in the first half of 2021, as weak services exports, particularly from tourism, were only partially offset by strong remittances and an improved goods trade balance. Outflow of portfolio investments completely offset FDI inflow, and public borrowing fully covered the external gap, enabling the accumulation of international reserves. The latter remained adequate at $4.1 billion as of end-August 2021, covering over four months of goods and services imports.
The fiscal deficit widened by 13 % y-o-y in the first eight months of 2021, as rising public expenditures – including additional COVID-19 response measures – offset an 18 % y-o-y increase in revenues. By end-August, the fiscal deficit had reached about 4.2 % of annual GDP out of a planned 7.6 %, while public debt fell to 53 % of GDP from 62 % as of end-2020.
Strategy
Number of Active Projects 13
Lending $990.3 Million
IBRD $940.3 Million
IDA $50 Million
The Country Partnership Framework (CPF) for FY19–22, developed in collaboration with the Government of Georgia and endorsed by the Board on May 22, 2018, aims to support sustainable and inclusive growth and improvements in living standards across three focus areas: enhancing inclusive growth and competitiveness, investing in human capital, and building resilience. In response, the CPF portfolio balances interventions to strengthen infrastructure and connectivity while aiming to grow the engagement in human capital and resilience. World Bank Group support includes financing, Advisory Services and Analytics, and convening services.
The current active lending portfolio includes 13 investment projects with a total commitment of $990.30 million, out of which $434 million is disbursed. Twenty-one % of the commitments is in sustainable development, 45 % in infrastructure, 21 % in human development, and 13 % in equitable growth, finances, and institutions. In addition, the portfolio includes two recipient-executed trust fund operations of about $5.76 million.
In FY21, the Log-In Georgia Project ($40 million, International Bank for Reconstruction and Development [IBRD]), Relief and Recovery for MSMEs ($102.9 million, IBRD), and the Additional Financing for Georgia Emergency COVID-19 Project ($34.5 million, IBRD) were approved by the Board. Three more IBRD lending operations (Human Capital Program for Results, Kakheti Integrated Mobility Project, and GRID Development Policy Operation), with total commitments estimated at $600 million, are envisaged for FY22 delivery.
The knowledge program includes seven activities totaling $4.98 million in governance, macroeconomics, finance, innovation, energy and extractives, agriculture, and food.
Economic Outlook
Georgia’s GDP growth rate for 2021 is now projected at 8 %, up from 6 % in April. In the baseline scenario, output will surpass its 2019 level in 2021. This estimate assumes that some COVID-19-related restrictions will remain in effect for the rest of the year.
Over the medium term, GDP growth is expected to return to its potential rate of about 5.0-5.5 % as the fiscal stimulus winds down, monetary policy normalizes, and tourism recovers. The baseline projection assumes no major new COVID-19-related restrictions in a context of rising vaccination rates. As growth recovers and real wages and transfers increase, the poverty rate is expected to decline and reach pre-crisis levels by 2022.
The fiscal deficit is expected to remain elevated at around 7.6 % of GDP in 2021 before gradually declining, as revenues recover and emergency spending subsides. The deficit is projected to narrow to about 3 % of GDP by 2023 in line with the fiscal rule.
Inflation is forecast to remain above the central bank’s 3 % target in 2021 and 2022 but should converge with the target over the medium term by end-2023, as transitory pressures subside and monetary policy actions anchor inflationary expectations.
As service exports recover and rebounding economic activity causes imports to rise, the current account deficit is expected to narrow to 10 % of GDP in 2021 and continue shrinking over the medium term. Recovering FDI and sustained support from international financial institutions are expected to cover Georgia’s external financing needs and help maintain a comfortable reserve cushion.
Delayed vaccinations, new mobility restrictions, and prolonged political tensions are the key downside risks to Georgia’s outlook. These risks could slow the recovery and inhibit progress on poverty reduction and job creation.
Last Updated: Oct 13, 2021
