The signing of the Association Agreement with the European Union in June 2014 and the coming into effect of the Deep and Comprehensive Free Trade Area (DCFTA) in September are landmark achievements for Georgia. With greater policy certainty, there was an uptick in business and consumer confidence leading to an output expansion of 6.0 percent year-on-year in the first half of 2014, up from 3.2 percent in 2013 as a whole.
Favorable domestic conditions and strong external demand supported economic growth in the first half of this year, demonstrating that regional economic tensions have not yet adversely affected Georgia. The large Russian market which opened up for Georgian products in July 2013 helped increase exports, particularly of wine. Greater consumer and business confidence gave a boost to manufacturing and trade. In addition, the construction sector benefited from renewed public infrastructure projects and resumption in business related investments. The agricultural sector grew at a relatively modest pace compared with industry and services.
Georgia’s economic growth is projected to be an average of 5.5 percent per year over the medium term based on greater policy certainty, improved market access, and strong structural reform implementation. Medium-term growth prospects depend on a number of factors, including improved economic ties with the EU and the robust reform program outlined in the Government’s development strategy, which will support growth in private investment. Growth prospects depend on Georgia’s ability to leverage the Deep and Comprehensive Free Trade Area and Association Agreement with the EU, which will improve market access and encourage FDI.
Net FDI is likely to amount to 6.3 percent of GDP on average, while the national savings rate is expected to increase to 20.5 percent of GDP by 2017.
Georgia’s public debt remains sustainable. Total public sector debt fell from 38.7 percent of GDP in 2010 to 32.2 percent in 2013 due to continued fiscal consolidation efforts. About 80 percent of public debt in 2013 was external and was dominated by bilateral and multilateral debt.
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.
Georgia has also adopted a State Strategy for Regional Development to create a favorable environment for regional socioeconomic development and to improve living standards. Addressing regional disparities, poverty, and unemployment has been flagged as a key priority for intervention by the Government in its new Socioeconomic Development Strategy of Georgia: 2020.
One of the potential drivers of economic growth in cities and regions is tourism, which recently saw rapid growth in Georgia and has become an important source of job creation. The number of visitors increased from 560,000 in 2005 to 5 million in 2013, with 6.3 million expected in 2015. An integrated and demand-driven approach to regional development has been designed with the support of the Bank and is currently seen as critical in spurring growth and job creation in historic cities and cultural villages.
The Country Partnership Strategy (CPS) for FY14–17 was approved by the World Bank Board of Executive Directors in May 2014. The new CPS envisages a new lending envelope of about US$1.18 billion, which is roughly 30 percent higher than the program delivered under the previous CPS (US$823 million in FY10–13). Georgia graduated from IDA as of the end of the IDA 16 Replenishment period.
Since Georgia joined the World Bank in 1992, a total of 62 projects comprising approximately US$ 2.27 billion of IDA credits and grants and IBRD loans have been provided to the country. The current portfolio consists of eleven active investment projects and one development policy operation for a total of around US$ 848 million.
Last Updated: Jan 21, 2015