The World Bank in Georgia

Country Context

Georgia has had a successful development record, underpinned by prudent economic management over the past decade. Growth averaged 4 percent per annum between 2011 and 2021. The poverty rate measured by the international upper-middle-income line (US$5.50 per capita per day, 2011 purchasing power parity [PPP]) declined from 59 percent in 2011 to 42 percent in 2021. Nevertheless, critical structural challenges remain, particularly weak productivity and the need to create high-quality jobs. Many Georgians remain in rural areas engaged in low productivity agriculture. Measures of human capital continue to be weak, with poor learning outcomes and a lack of linkages between education and private sector needs. In addition, Georgia’s trade openness and reliance on income from tourism make it vulnerable to external and global shocks. High dollarization and persistent reliance on external savings further amplify risks. Still, the swift post-pandemic rebound has demonstrated the growing maturity and resilience of Georgia’s economic institutions.

Last Updated: Apr 19, 2022

Strategy

The Country Partnership Framework (CPF) for FY19–22, supports the Government of Georgia’s vision of developing a market-based economy while ensuring nationwide prosperity and strengthening its regional position. The CPF supports sustainable growth across three focus areas: (i) enhancing inclusive growth and competitiveness; (ii) investing in human capital; and (iii) building resilience. The Performance Learning Review (planned for the fourth quarter of FY22), which proposes the extension of the CPF by one year, adjusts the program to reflect COVID-related developments and an increased focus on a green and resilient recovery and inclusive development.

The current active lending portfolio includes 14 investment projects with a total commitment of US$1.42 billion, out of which US$422.7 million (29.7 percent) is disbursed. Fourteen percent of the commitment is in sustainable development, 34 percent in infrastructure, 43 percent in human development, and 9 percent in equitable growth, finances, and institutions. In addition, the portfolio includes two recipient-executed trust fund operations of about US$5.76 million.

Two large-scale operations were delivered in FY22: the Georgia Human Capital Program for Results (US$400 million) and the Kakheti Connectivity Improvement Project (US$109 million). The Human Capital Program for Results is the first Bank operation to comprehensively target all three facets of human development: education, health, and social protection. The FY23 lending pipeline includes four projects: the first in a programmatic Development Policy Operation series focused on green, resilient, and inclusive development (US$50 million); the Georgia Resilient Agriculture, Irrigation, and Land Project (US$200 million); the Integrated Regional and Local Development Project (US$50 million); and the Emergency Preparedness and Resilient Critical Infrastructure Project (US$50 million).  

The knowledge program includes seven activities totaling US$5.12 million in governance, macroeconomics, finance, innovation, energy and extractives, poverty, and equity.

Key Engagement

The World Bank is committed to unlocking the economic potential of Georgia through greater investment in human capital as the key driver of the country’s growth. The US$400 million Georgia Human Capital Program, approved by the World Bank’s Board of Executive Directors in March 2022, is the largest cross-sectorial financing ever extended to Georgia by the World Bank over the 30 year partnership. This transformational program aims to support Georgia in reforms focused on refining the health and social protection systems to better orient them toward people’s needs and to ensure access to high-quality education for the next generation.   

The World Bank supports human capital development in Georgia through one other ongoing critical program, the Innovation, Inclusion and Quality Project (I2Q), which aims to help Georgia to narrow the skills gap between learning outcomes and labor market expectations.

World Bank support for Georgia’s COVID-19 response will also strengthen the health sector of Georgia beyond the pandemic. Along with the emergency response measures, such as procurement of critical COVID-19-related medical equipment, vaccines, and social assistance packages, this support will also enable the upgrade of hospitals across the country, which will continue to benefit Georgia even after the pandemic is over. Additionally, in order to help the jobs agenda and to boost the digitalization of Georgia’s business sector, the World Bank has provided support to over 6,000 micro, small, and medium-sized enterprises that were the hardest hit by the crisis. 

Georgia’s digital transition has been also supported through another critical Bank project, the Log-In Georgia Project, which will connect up to 500,000 people residing in over 1,000 villages in the mountainous and remote regions to high-speed affordable broadband internet, granting access to digital financial services, e-commerce, e-government services, remote learning, and telemedicine.   

The World Bank continues to support Georgia’s aspiration to become a regional transit hub. Most recently Georgia was provided with US$109 million in financing for the Kakheti Connectivity Improvement Project (KCIP), which will help connect Georgia’s key winemaking and agricultural center, the Kakheti region, to the capital city and to the country’s highway network. To improve Georgia’s regional connectivity and thus boost the country’s growth potential, the World Bank has provided over US$1 billion in total financing for infrastructure projects over its 30-year partnership, including for development of the East-West highway and for the rehabilitation of the secondary and local road network across Georgia. 

Last Updated: Apr 19, 2022

Recent Economic Developments

Georgia’s economy expanded by 10.4 percent in 2021 following the 6.8 percent contraction of 2020, with output surpassing pre-COVID-19 levels by late-2021. Economic recovery also supported a reduction in poverty, with projections suggesting a decline to pre-pandemic levels in 2021. The fifth wave of the COVID-19 pandemic abated in March 2022, with new cases falling to below one percent of peak levels in early February. 

Inflation rose to an average 11.3 percent by February 2022, reflecting higher commodity prices and pass-through from earlier depreciation. Food and fuel prices contributed around 6 percentage points to overall inflation. In response, the National Bank of Georgia tightened the monetary policy rate to 11 percent, adding 250 basis points in 2021 and 50 basis points in March 2022. 

The foreign trade deficit widened by 26 percent year-on-year (y-o-y) in 2021. Exports grew by 27 percent y-o-y and imports by 25 percent. Still, a gradual recovery in tourism and substantial transfers from abroad helped narrow the current account deficit. 

The fiscal deficit narrowed in 2021 to 7.1 percent of GDP (excluding sales of non-financial assets) from 9.8 percent in 2020, in line with the plan to return to deficit levels prescribed by the fiscal rule (around 3 percent of GDP) by 2023. Public debt to GDP declined to 52 percent of GDP as of end-2021, considerably below the 62 percent registered in 2020.

Economic Outlook 

The war in Ukraine is likely to impact the Georgian economy adversely through trade, tourism, and remittances. Elevated commodity prices will also affect Georgia. Oil and food prices have increased sharply since the beginning of the war due to the uncertainty and disrupted commodity supplies from Russia and Ukraine. These impacts will cause a slowdown in growth, higher inflation, and widening external balances. Georgia’s growth forecast for 2022 has been downgraded to 2.5 percent from the 5.5 percent projected before the war began. The baseline outlook envisions growth recovery from 2023 onward, as easing monetary policy, the recovery of tourism, and the restoration of economic links are partly offset by the gradual withdrawal of the fiscal stimulus.

The conflict in Ukraine will also likely have a significant impact on poverty and vulnerability due to the decline in tourism and remittances and the higher energy and food prices (especially wheat). However, Georgia is well placed to manage the economic fallout of the war. Buffers remain reasonable, the macro-financial framework is credible, and the banking sector is entering the crisis in relatively strong shape. Fiscal discipline has been maintained over the past decade, although the planned post-COVID consolidation may decelerate due to the economic slowdown. Still, government deposits are sizable, and debt is likely to remain sustainable.

Last Updated: Apr 19, 2022