TBILISI, GEORGIA (3 April 2020) — Georgia will experience a substantial slowdown in 2020 due to the COVID-19 pandemic and lower oil prices. A recovery is expected in 2021 as a result of higher domestic demand, increased foreign direct investment, and a rebound in workers’ remittances, according to a new Asian Development Bank (ADB) report.
In Asian Development Outlook (ADO) 2020, the bank’s annual flagship economic publication, ADB projects Georgia’s gross domestic product (GDP) growth to decline to 0% in 2020 as the impact of COVID-19 and lower oil prices constrain consumption and limit expansion in tourism and trade. However, Georgia’s economy is expected to bounce back with a 4.5% growth in 2021.
“As a leading reformer, Georgia has already taken measures to soften the economic shock of the pandemic, such as imposing a moratorium on collecting property and income taxes in the hospitality sector, easing bank lending regulations, and increasing spending on infrastructure, among others,” said ADB Country Director for Georgia Shane Rosenthal. “The country can lay a foundation for fast recovery by further supporting private sector development and investing in technological advancement, science, and digital education.”
Gains in retail trade and higher government spending on education are forecast to boost services by 1.1% in 2020. The figure is projected to rise to 6.3% in 2021 as tourism recovers. Growth in industry, meanwhile, is projected to contract to 3.1% in 2020 due to a slowdown in construction and manufacturing, before recovering to 2.1% in 2021 with higher mining output.
Inflation is projected to slow to 4.5% in 2020 and 3.0% in 2021—in line with the central bank’s target—as a result of the introduction of administered prices on food.
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.
Exports are projected to grow by 3.6% in 2020 and by 11.9% in 2021, while modest domestic expansion and higher FDI are expected to raise imports by 1.1% in 2020 and by 7.0% in 2021.
Risks to economic growth include greater than expected sluggishness in trading partners’ economies, weaker than expected domestic demand, slower growth in tourism revenues, and tighter liquidity in global financial markets, in part reflecting the impact of COVID-19.
The ADB report highlights the need for Georgia to promote technological innovation for business development. While the country has made tangible progress in creating innovative digital services, the government can make electronic commerce more trustworthy and viable by improving legal and regulatory frameworks while creating more efficient mechanisms for setting taxes and tariffs.
The government should also continue reforms in education and improve familiarity with digital technologies, particularly in rural areas, to make growth more inclusive.
ADB has supported Georgia since 2007 and is one of the country’s largest multilateral development partners. Sovereign and nonsovereign loans to Georgia total $3.5 billion. ADB’s key development priorities in Georgia include fostering inclusive and sustainable economic growth, reducing poverty, enhancing regional connectivity, and improving public service delivery.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.