Tough future for the Georgian economy

In the next few years, the Georgian economy will face tough challenges and problems, both Georgian and foreign analysts say. The Georgian Government has also admitted this and started talking about a “hard winter and spring.” However the large scale international support promised by Western countries after the August war might help the Georgian economy overcome these hardships.

The document issued by the international donors (the World Bank, the European Commission and the UN) notes that “after several years of double figure increases of the economy, recession might be expected in the second half of the 2008 and the first quarter of the 2009. If the money allocated by the donors is transferred in full, economic growth will renew and by the end of the 2009 its indicator will reach 4%,” (according to the prewar prognosis, it should have been 8-9%). Even with this optimistic prognosis GDP per capita will be USD 660 less by the end of 2011, than it was expected to have been before the crisis.

According to the needs assessment document, “a hindering of economic growth will increase the indicators of poverty and unemployment.” It is expected that in the near future about 100,000 citizens of Georgia will lose their jobs. The indicator of poverty is set to rise from the current 23.6 % to 25.9% and the conditions of those who already live in poverty will worsen even more.

In line with the economic recession, the tax income of the Government will also decrease. This will decrease the possibilities for spending and investments. As a result of growing social problems, the budget deficit will also grow, as well as the risk that alongside the decrease in investments in the private sector the state will also have to cut its expenditures.

The economic growth before the war was caused by direct foreign investments and the growing availability of bank credits. The volume of direct foreign investments has sharply decreased since the August war. The banking sector has also suffered hard times due to the war and world financial crisis. Banks have significantly ceased giving credits. The construction and real estate businesses have suffered the biggest losses, as well as the retail trade and tourism sectors, which had been the key sectors of the Georgian economy before the war.

Analysts are fearing that the USD 4.5 billion allocated for Georgia will not be fully transferred to Georgia due to the economic crisis in the donor countries.