Georgian economy started to slow down since the last quarter of 2012 and GDP registered 1.7 % growth in the first three quarters of 2013. Post-election policy uncertainty and weak budget execution encouraged a wait-and-see behavior among businesses and consumers and impacted growth. However there were no adverse developments on monetary and exchange rate policies and domestic and external sustainability were maintained to facilitate quick recovery in 2014.
The World Bank expects Georgia to have 6.3 percent economic growth in 2014. The estimate was published in the Bank’s Global Economic Prospects 2014, which reads that the prognosis for economic growth in Georgia in 2014 is 6.3 percent. The expectation for 2015 is also 6.3 percent and 6.5 percent for 2016. In 2013, Georgia’s economic growth was 2.5 percent.
Georgia achieved robust economic growth between 2003-2012, averaging 6.1 percent annually following structural reforms that stimulated capital inflows and investment. The reforms helped improve the business environment, strengthened public finances, upgraded infrastructure facilities and liberalized trade. Growth was also supported by increased foreign direct investments (FDI) and was driven by capital accumulation and sound use of excess capacity rather than by net job creation, with productivity gains concentrated mainly in the non-tradables sectors. GDP per capita increased from $920 in 2003 to $3,500 in 2012 (in current prices).
Unemployment remains the most significant public policy challenge in Georgia. The capital-intensive nature of Georgia’s robust growth performance was reflected in relatively high unemployment, which remained in the 12-13 percent range even during the pre-crisis boom. Unemployment peaked during the crisis to 17 percent in 2010 and then fell to 15 percent in 2012. With economic transformation in Georgia, some of the older sectors and industries died, shedding their labor force. New industries grew during the same period but have not been able to absorb the workforce as effectively and overall labor demand remains weak while skills mismatches persist. The majority of the work force – more than 55 percent – is employed in agriculture (mostly self-employed), which contributes only 8.2 percent of GDP and is characterized by family-based subsistence farming.
While there was a slight decline in agriculture, growth has been broad based, and was led by manufacturing (especially mineral products, food processing, and alcohol/ beverages) and construction (driven mainly by sustained high levels of public investment). The growth in services was supported by an expansion in transit (particularly to and from Armenia, Azerbaijan, and Central Asia), financial intermediation, hotels and restaurants, transport, and communications. In addition, the Government’s efforts to promote Georgia as a tourist destination helped raise tourism revenues by 56 percent in 2012.
Located on the shortest route between Europe and Asia, Georgia’s transport system is a key link in the historic “Silk Road.” The Government’s commitment to rehabilitating main, secondary and local road networks has intensified in response to the global economic down-turn, as road rehabilitation will improve access to markets and services, and create short-term employment through civil works.
Georgia has a developed, stable and reliable energy sector but efforts are required to improve the efficiency in domestic energy use. The most promising source of additional energy generation is hydropower and the Government is focused on securing private investments for construction of new hydropower stations. Currently, only 12 % of Georgia’s hydropower potential is being utilized.
The Government has launched several regional development initiatives in recent years to improve local infrastructure and is also trying to promote sustainable tourism in promising regions.
In November 2013, Georgia initialed the Association Agreement including DCFTA (Deep and Comprehensive Free Trade Agreement) with the European Union at the Vilnius summit, further cementing its west-ward leaning political, economic and foreign policy.
The World Bank’s Country Partnership Strategy (CPS) with Georgia for FY2014 – 2017 is currently under preparation and is scheduled for Board discussion in April, 2014. The current portfolio of operations in the country consists of seven active investment projects financed by IDA credits/IBRD loans of US$540 million.
The World Bank has been a leading development partner of Georgia since 1992 with total commitments of US$ 2 billion for the lending program underpinned by strong analytical and advisory services.
Last Updated: Feb 17, 2014
Georgia joined the World Bank in 1992 and the International Development Association (IDA) in 1993. The Bank has provided financing for 53 projects in different sectors totaling over US$ 1.68 billion of IDA credits and grants and IBRD (International Bank for Reconstruction and Development) loans, of which about 90 % has been disbursed. Approximately 67 % of Bank financing for Georgia is on investment projects while 33 % is directed towards budget assistance through development policy operations (DPOs).
The Country Partnership Strategy (CPS) for FY10-13 was approved by the Board in September 2009 with newly planned IDA/IBRD lending of about US$ 396 million for fiscal years 2010-2013. The strategic objectives of the CPS are: to meet post conflict and vulnerability needs, and strengthen competitiveness for post-crisis growth.
Given Georgia’s short-term financing needs, the Government requested maximum frontloading of financial flows from both IDA and IBRD sources. To that end, the lending program in fiscal year 2010 amounted to US$ 290 million and represented the highest volume since joining the Bank.
In view of the increased IDA-16 envelope for Georgia, and higher IBRD financing, the CPS program lending will increase by about US$ 360 million. In FY12 the Bank has already approved one DPO and two investment operations (Regional Development and Second Secondary and Local Roads projects) amounting to US$ 170 million. Additional Financing for the ongoing Third East-West Highway improvement project in the amount of US$ 43 million was already negotiated and is planned for Board review in June 2012.
The Current Portfolio consists of seven active investment projects financed by IDA credits/IBRD loans for a total of US$ 440.3 million, of which US$ 111.8 is IDA. About US$ 177 million is undisbursed.
In addition to IDA/IBRD operations there is an active program of five Trust Fund operations for about US$7 million, which is financing or co-financing ongoing projects as well as providing sector diagnosis and strategies that underpin the Bank’s dialogue and possible interventions.
Analytical and Advisory Activities (AAA) further contribute to program implementation.
Since Georgia joined the World Bank in 1992, projects have supported reforms in transportation and infrastructure, health and social welfare, and regional development.
Key accomplishments of the Country Partnership Strategy (CPS) include:
Rehabilitation of over 600 km of roads, creating about 20,000 person-months of employment and providing improved public access to markets and social services.
Seven new schools were constructed, serving 4,150 students (about half of whom are girls) and employing more than 300 teachers.
Over 1,800 health specialists were trained in family medicine, of which 95 percent are women. A 25-bed hospital was constructed in a mountainous area and a primary health care center was opened in Gori serving about 69,000 beneficiaries (of which 10,000 are IDPs).
The targeted social assistance (TSA) scheme was scaled up to cover 408,367 beneficiaries, of which about 56 percent are women.
Improvements in the business environment have continued. The e-filing system was expanded for all tax payments; as a result, 75 percent of all declarations in 2010 were completed electronically (compared with only 10 percent in 2009).
Recent results from Bank-supported projects include:
World Bank’s DPO Series Supports Economic Recovery and Helps Mitigate Crisis Impact
Supported by a series of three IDA/IBRD development policy operations (DPOs) during 2009–11, Georgia’s economy rebounded strongly by 6.3 % in 2010 and 7 % in 2011. The social safety net was strengthened to help cushion the impact of the crisis on the poor: coverage under the targeted medical insurance and social assistance programs expanded to 900,000 (a fifth of the population) and 440,000 people, respectively, by 2011. Tax, customs, and trade-related reforms helped bolster investor confidence and competitiveness, with the share of electronic tax filings leaping from one percent in January 2009 to over 85 percent by the end of 2010.
Running Water—A Huge Relief for Georgian Cities and Towns
Georgia is steadily improving life for its citizens by reversing the effects of years of neglect on basic urban services like water, sanitation and roads. Over the past decade, the country has invested millions into improving the quality, coverage and maintenance of regional and municipal infrastructure. Overall, the Regional & Municipal Infrastructure Development Project has increased piped water services from an average of seven hours a day to 12. It has brought piped water to 30,000 households that previously were not connected to the system, and given access to improved water to another 90,000 people. And it's making it easier for the private sector to do business. Georgia appears to be on target to achieve the Millennium Development Goals pertaining to water and sanitation by 2015.
Reducing Transport Costs and Improving Access and Traffic Safety on Georgia’s Regional Roads
To promote agricultural and rural development, Georgia’s economic development program for 2008–12, “Georgia without Poverty,” emphasized targeted infrastructure development, which is linked to economic growth. Better infrastructure improves the competitiveness of goods, lowers prices for consumers, improves regional integration, and enhances access to markets and social services. The government has implemented significant measures in the transport sector in recent years to upgrade its infrastructure to international standards. The project was designed primarily to rehabilitate the road link between Tbilisi and the Kakheti region, and also to improve traffic safety measures throughout the region. The Kakheti Regional Roads Improvement Project (KRRIP) has resulted in significant improvements for about 60 percent of the total population of Kakheti Region (about 240,000 people)
Financing Farmers, Strengthening Georgia's Rural Development
Thanks to credit lines backed by the World Bank, farmers around Georgia are able to invest more than labor in their land and their operations, making it easier for them to expand production. The credit line for microfinance institutions has loaned a total of $7.5 million to over 7,000 farmers, with the vast majority of farmers receiving loans under $5,000. Cattle and dairy farmers, greenhouse owners, orchard growers and others have obtained credit on interesting terms through the program. Defaults are less than one percent.
With support, Georgia can significantly improve its agricultural production base and become an exporter of agricultural products. Studies show that exporting wine, nuts, mineral water, herbs, citrus and, fresh fruits, vegetables and livestock could help to cut rural poverty. With help from the line of credit aimed at developing rural areas, Georgia's farmers, agri-business owners and food processors are a step closer to boosting production, exports and their livelihoods.