The Georgian economy is unlikely to recover to pre-COVID levels until late 2022, the World Bank projects.
“Emerging and developing economies in the Europe and Central Asia region are expected to grow by 3.6% this year, as a recovery in exports and stabilizing industrial commodity prices partly offset a resurgence of the pandemic late in 2020 and a recent flareup in new cases,” says the latest edition of the World Bank’s Economic Update for the region.
The document reads that the modest growth in 2021 follows a contraction of 2% in 2020 due to COVID-related disruptions. “The contraction was smaller than anticipated due to a stronger than forecast recovery in Turkey and resilience in Russia, the region’s largest economies. Rebounding industrial production, increased export external demand, higher commodity prices and fiscal and monetary support contributed to this outcome. Hardest hit are economies that are heavily dependent on services and tourism since social distancing measures and mobility restrictions led to sustained weaknesses,” it notes.
Based on the same source, regional growth is expected to strengthen to 3.8% in 2022, as the effects of the pandemic gradually wane and trade and investment gather momentum. The outlook remains highly uncertain, however, and growth can be weaker if the pandemic takes longer than expected to fade; there are delays in vaccination; external financing conditions worsen due to a rise in global interest rates or deterioration in investor sentiment; or due to geopolitical tensions.
After suffering the sharpest collapse among the subregions of Europe and Central Asia in 2020, amid conflict and high COVID-19 infection and fatality rates, growth in the South Caucasus is projected to rise to 3.1 % in 2021 and to accelerate to 4.2 % in 2022, the World Bank projects.
The document points out that the COVID-19 pandemic has hit Georgia hard. Mobility restrictions, a sudden halt to international tourist arrivals, and weak external demand drove an estimated economic contraction of 6.2% in 2020. The poverty rate increased by an estimated 5.4 percentage points. Job and income losses were severe. The fiscal deficit and public debt rose above statutory levels as the crisis put pressure on fiscal and external balances. Georgia’s economy is projected to expand to 4% in 2021 and then to firm to 5% in 2022. Despite this improvement, the output is unlikely to recover to pre-COVID levels until late 2022, in part owing to a subdued outlook for international tourism over the forecast horizon. The recovery is subject to considerable downside risks, including delayed vaccinations, additional or extended COVID-19restrictions,tightening global financial conditions, and prolonged political tensions.
“The pace of Georgia’s recovery beyond 2021 will be contingent on vaccine rollout and the restoration of international trade and investment,” said Sebastian Molineus, World Bank Regional Director for the South Caucasus.“For a sustained and resilient recovery, Georgia will need a continued focus on slowing the spread of COVID-19 infections, large-scale vaccination, and addressing longer-term challenges, including human capital, strengthening institutions and promoting a digital and green recovery.”
The pandemic is expected to erase at least five years of per capita income gains in several of the region’s economies and raise the poverty headcount, largely due to job losses. Overall, despite the rebound in growth, the recovery in per capita gross domestic product (GDP) of the region is subdued and below pre-pandemic trends.
“The pandemic continues to cast a shadow on economic activity in Europe and Central Asia. However, as policymakers grapple with the short term impacts on health, education and the economy, they should seize the opportunity to address the long term challenges of boosting productivity, building a more vibrant private sector, improving institutions and moving towards low-carbon, greener and inclusive economies,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.
Fundamental to achieving these long-term development goals is good governance, the World Bank notes. The pandemic has underscored the need for good governance given the important role governments around the world have played in mitigating the health, economic and social impacts of the virus. The range of measures have included restrictions on movement to control the spread of the infection to vaccination programs, relief packagesto protect individuals and businessesfrom the economic fallout of the pandemic, and devising ways for virtual learning for millions of school children.
In a special analysis on ‘Data, Digitalization, and Governance in Europe and Central Asia’, the report examines the potential role of data and digitalization in improving governance in the region.
“To effectively address the challenges brought on by COVID-19, improving governance has assumed an even greater importance in the region,” said Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. “Digital technology and the data revolution offer the potential to increase efficiency, transparency, responsiveness, and citizen trust, all of which directly improve the quality of government.”
Datalay the ground for improved decision making, optimized government functioning, and more effective resource allocation, while digitalization strengthens these processes and enables greater efficiency and transparency, the World Bank concludes.