Overview

Background: In June 2014, Georgia signed an Association Agreement with the European Union. The Agreement, which includes a Deep and Comprehensive Free Trade Area (DCFTA), marks several years of cooperation between Tbilisi and Brussels under the Eastern Partnership program, and represents the first step on Georgia's journey towards membership. It describes the gradual improvements needed in areas such as trade, environment, agriculture, tourism, energy, transport and education to bring Georgia in line with EU standards. The DCFTA is aimed at enhancing Georgia's trade and economic growth through bringing its legislation closer to that of the EU. It also removes the existing barriers on the trade of goods and services with the EU.

The recession in Russia and slower growth among other trading partners impacted Georgia through lower exports and reduced remittances, particularly from Russia and Greece. The tradable sector suffered the most, with industrial production contracting by one percent in 2015. As a result, growth moderated from 4.6 percent in 2014 to 2.8 percent in 2015. With a decline in external performance, the current-account deficit widened to 11 percent of GDP, and the Lari lost 30 percent of its value since December 2014. The tightening of monetary policy together with lower oil prices helped contain inflation during 2015 to 4.9 percent. Prudent financial sector supervision ensured stability of the banking sector and low level of NPLs at 2.3 percent in 2015. In an environment of weak external demand and high policy rates, the government supported growth through a 17 percent increase in capital expenditures.

Despite the overall slowdown, growth was supported by non-tradables such as construction, which grew at 16 percent, and services with growth of 3 percent. Foreign direct investment (FDI) and tourism proceeds remained stable, which also helped increase employment by 20 percent and real wages by 4.7 percent in 2015. The largest increases in wages were in construction, real estate, and health.

With Parliamentary elections scheduled for October 2016 and the weakness in external markets likely to persist, growth is projected at 3 percent in 2016. Georgia’s anticipated adoption of the Estonian tax model would replace the corporate profit tax with dividend tax: while this measure could boost medium-term growth, tax revenues will decline immediately and could increase the fiscal deficit by up to 2 percentage points of GDP by 2017 (IMF estimate).  Slow growth, a large current-account deficit, high levels of external debt (over 100 percent of GDP), and a widening fiscal deficit are the main macroeconomic challenges faced by the country.

Priorities: 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.

Georgia has also adopted a State Strategy for Regional Development to create a favorable environment for regional development and to improve living standards of the population. Addressing regional disparities, poverty, and unemployment has been flagged as a key priority for intervention by the Government in its Socioeconomic Development Strategy - 2020. 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 heritage villages.

Tourism is one of the fastest growing economic sectors in Georgia – total contributions accounting for 23.5% of Gross Domestic Product (GDP) and 20.1% of total direct and indirect employment in 2015. The sector also currently provides as much as 36.4% of total export earnings.  This focus on improving the entire tourism value chain around a tourism circuit across the region, and not simply single sites or individual projects, is expected to increase the country’s rank in the Tourism Competitiveness Index, providing economic benefits for the entire country for years to come. 

Last Updated: May 05, 2016

The World Bank Group’s Country Partnership Strategy (CPS) supports Georgia’s Strategy-2020 and both strategies are fully in line with the WBG twin goals of ending extreme poverty and boosting shared prosperity. The Bank’s investment portfolio is predominantly in infrastructure although the overall partnership is broader with Advisory Services and Analytics (ASA) further contributing to program implementation. 

For the FY17-18 period, the Government is seeking continued International Bank for Reconstruction and Development (IBRD) financing for its ambitious infrastructure program. Georgia has struggled to bring about job creation and its high unemployment level is closely linked to high poverty rates which are amongst the highest in ECA.  In terms of shared prosperity, Georgia is one of the weakest performers in ECA whereby consumption of the bottom 40 percent grew at only 0.7 percent per year compared to 2 percent for the overall population. The World Bank support has become more poverty focused with a greater orientation towards human capital development.  While public spending on education, health, and social protection has been increasing, its level is still very low overall, and more importantly, getting the corresponding results remains a major challenge. 

The CPS for Georgia (FY14–17) envisages a lending envelope of about US$1.18 billion. At the end of FY16, Georgia graduated from the International Development Association (IDA). The objectives of the CPS are to reduce poverty and support inclusive growth focused on job creation. These objectives are fully aligned with the Government’s Strategy-2020. The CPS objectives are supported through two areas of focus: (i) strengthening public service delivery to promote inclusion and equity, and (ii) promoting job creation and competitiveness to enable private sector–led inclusive growth.

The current portfolio consists of 13 active investment projects financed by IDA credits and IBRD loans for a total of US$920 million, of which US$200 is IDA. The two DPO series (Programmatic Inclusive Growth DPO and Private Sector Competitiveness DPO) are also part of the ongoing program. In addition to IDA/IBRD operations, there is an active program of seven recipient-executed trust fund operations of about US$18 million.

World Bank commitments to Georgia since 1992 total approximately US$ 2.58 billion.

Last Updated: May 05, 2016

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.


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Georgia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments