Page 5 - GEORptSep20
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1.0 Executive summary
The economic decline in Georgia this year will be in the range of 3%-6%, investment bank Renaissance Capital has said after assessing the impact of the coronavirus (COVID-19) crisis on the country’s economy. However, it stated that the rate of decline would depend on the size of the second wave of COVID-19 that hits the country.
Georgia’s Prime Minister Giorgi Gakharia has announced the third phase of the government's anti-crisis plan, which “aims to take care of the citizens and provide them with social support”. The cost of the package drawn up by the government, which is on the cusp of going into general election mode, is estimated at Georgian lari (GEL) 410mn ($135mn).
While it is widely seen as having successfully addressed the pandemic to date,
Georgia faces a sharp plunge in international tourism revenues and subdued external demand. Georgia’s GDP contracted by 12.6% y/y in Q2 following the modest 2.2% y/y advance recorded in Q1. The country thus suffered a 5.8% y/y contraction in growth in H1. Its economy is set to shrink by 4.8% in 2020 versus a total decline in the South Caucasus region of 3.1%, the World Bank said in early June in its updated Global Economic Prospects report.
The International Monetary Fund (IMF) said in April that Georgia’s current account gap would hit 11.3% of GDP this year amid weak tourism revenues—since then the recovery outlook for the sector has deteriorated. Developments have put further pressure on the public deficit, seen in April by the IMF as heading for 8.5% of GDP.
With key parliamentary elections in October, Georgia’s government cannot risk a coronavirus (COVID-19) epidemiological deterioration that would go down badly with the electorate, while keeping the borders closed could equally expose it to criticism from the opposition for deep impacts on the economy.
As regards monetary policy, Renaissance Capital predicted that by the end of the year, Georgia’s central bank would continue to reduce its refinancing rate. The National Bank of Georgia (NBG) has cut its refinancing rate by another 25bp to 8.0% in a visible attempt at balancing the deterioration in Georgia’s current account outlook.
Periodic currency interventions by the national lender would continue, it added. The central bank has emphasised that its monetary policy will remain tight in order to reduce inflationary expectations and return the inflation target to 3% in the first half of 2021.
The central bank said that in July annual inflation eased to 5.7% and that according to its forecast it would continue to gradually decline over the rest of the year, reaching the 3% target level in the first half of 2021.
The European Commission said on August 11 it agreed Memoranda of Understanding (MoU) on macro-financial assistance (MFA) programmes with eight partners, including four Western Balkan countries. The agreements are part of the €3bn macro-financial assistance package for ten
5 GEORGIA Country Report September 2020 www.intellinews.com
