Page 13 - bne IntelliNews Georgia country report November 2017

With the title of "Migration and Mobility", the report notes that the Armenian economy has recovered throughout 2017 thanks to a resurgence in global metal prices, Armenia's main export commodity revenue stream, and stronger investment and consumption, which have also contributed to improved fiscal outcomes. Driven by industry, services and retail, GDP grew by 6% y/y in the first half-year and is projected to expand by 3.7% in 2017, 3.8% in 2018 and 4% in 2019.
Furthermore, the report notes that the government has been successful at fiscal consolidation - it managed to narrow the budget deficit from a high 5.5% of GDP in 2016 to 2.7% in 2017 - thanks to improved tax collection, which climbed by 7% y/y in the first half of the year. Improvements in customs transparency prompted a faster growth in imports compared to exports in the first half of 2017, and consequently a widening of the current account deficit.
Looking ahead, the presidential election of April 2018, the slow economic recovery in Russia and the uncertainty regarding Iran, Armenia's largest diplomatic and commercial partners, could affect the performance of the Armenian economy. Furthermore, the recent growth episode indicates a shift in the structure of the economy, with agriculture and construction performing poorly, while services and industry driving growth. This shift could lead to a change in the role of secondary towns, which will play an important role in job creation in order to replace subsistence agriculture.
Meanwhile, oil-rich Azerbaijan will continue to be in recession this year, despite a modest recovery in oil prices. With production volumes cut in line with an OPEC agreement, Baku is looking at a GDP contraction of 1.4% in 2017 following a larger, 3.8% contraction in 2016, and only modest growth - 0.9% in 2018 and 1.5% in 2019 - in the medium term.
In addition to low oil prices, the country's troubled banking sector has exerted a negative influence on the economy and will continue to do so, according to the World Bank. In the first six months of 2017, credit contracted by 15.6% y/y and the asset quality continued to deteriorate. Officially, non-performing loans stood at 13% of total sector lending at end-June, up from 9% at end-2016, though the figure is believed to severely underestimate the extent of the problem.
The fact that the government had to bail out the country's largest lender, International Bank of Azerbaijan (IBA), in August has pushed public debt up by 6% of GDP. Baku and IBA's creditors reached an agreement to restructure the bank's debt by swapping its obligations with sovereign ones and exacting as high as 20% haircuts for certain types of loans.
Looking ahead, the coming online of the large-scale Shah Deniz II gas project will help the economy return to growth starting in 2018. However, growth in the non-oil economy will remain subdued due to the weak credit growth and business environment.
In these circumstances, a large number of households remain vulnerable to falling back into poverty according to the World Bank. While officially the poverty rate stands at 4.9%, Azerbaijan's GDP per capita has almost halved in dollar terms in the last two years. Coupled with declining remittances from Russia, Turkey and other destinations for Azerbaijani workers, the trend has
13 GEORGIA Country Report November 2017 www.intellinews.com