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.