The World Bank in Georgia

Country Context

Georgia has made much progress over the past decade. As a result of sound economic management, GNI per capita converged toward European Union (EU) levels, increasing from $3,048 in 2010 to $4,608 in 2021 (constant 2015 US$). The poverty rate (measured by the national poverty line) was more than halved over the same period. Nevertheless, structural challenges persist, notably weak productivity and limited high-quality job creation. More than a third of all workers are engaged in low-productivity agriculture. Poor learning outcomes and lack of skills also constitute a barrier to private sector growth. Because of its trade openness and reliance on tourism, Georgia is vulnerable to external shocks. High dollarization and persistent dependence on external savings increase the risks associated with foreign exchange depreciation. Nevertheless, the swift post-pandemic rebound and the recovery from the initial impact of Russia’s invasion of Ukraine and related sanctions have demonstrated growing economic resilience, supported by sound macroeconomic management. The application for EU candidacy initiated in 2022 provides opportunities for further income convergence while requiring significant and sustained reforms. 

Last Updated: Apr 06, 2023

Strategy

The Country Partnership Framework 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 and inclusive growth across three focus areas: (i) enhancing inclusive growth and competitiveness; (ii) investing in human capital; and (iii) building resilience.  Completed in May 2022, the Performance Learning Review adjusted the program to reflect COVID-related developments as well as an increased focus on green, resilient, and inclusive development.  The CPF was extended by one fiscal year and will be completed at the end of FY23.  An update of the Systematic Country Diagnostic as well as a new CPF for FY24-28 are under preparation.

 As of April 3, 2023, the active lending portfolio amounts to $1.47 billion across 14 investment projects.  Disbursement stands at $467 million (32.98 percent). Under the CPF, the portfolio has been rebalanced to include more financing in human development. Thirty-five percent of the total commitment addresses challenges in education, health, and social protection, and 30 percent focuses on infrastructure and digital development. Other areas of engagement include irrigation, entrepreneurship and innovation, support to micro-, small-, and medium enterprises, as well as regional development.  

Two projects were approved on March 24, 2023: the first in a programmatic Development Policy Operation (DPO) series focused on Green, Resilient, and Inclusive Development (US$ 50 million); and the Georgia Resilient Agriculture, Irrigation, and Land Project (US$ 75 million).  The two projects indicate a more pronounced focus on support for Georgia’s efforts to address the country’s climate-related development challenges.   

The FY24 pipeline includes two operations: Second Green, Resilient, and Inclusive DPO ($50 million) and the Enhancing Energy Security through Power Interconnection and Renewable Energy (ESPIRE) ($500 million). 

  Each year, the World Bank delivers a robust knowledge program that includes advisory services and analytics that address a broad range of development challenges - from financial and private sector development, financial inclusion, and protection to water and irrigation and strengthening social protection systems. 

Key Engagement

The World Bank continues to support Georgia’s aspiration of becoming a regional transit hub through the East-West Highway Corridor Improvement Project co-financing and the relatively new Kakheti Connectivity Improvement Project ($109 million), as well as to play a leadership role in the policy dialogue on the development of the regional power and digital connectivity corridor. The Government is interested in strengthening its collaboration with the World Bank on energy security and cyber resilience. The proposed Enhancing Energy Security through Power Interconnection and Renewable Energy (ESPIRE) Project would support the Government in developing one of the world’s longest and deepest undersea power and digital cables across the Black Sea, which would enhance power trade and international data traffic flows between Europe and Asia via the South Caucasus (with landing points in Georgia and Romania). The proposed Project - a Multiphase Programmatic Approach (MPA) Program - would support the preparation, structuring, financing, and implementation of the Interconnection Project. 

Georgia’s digital transition has been additionally supported through another critical World Bank initiative – 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 of the country to high-speed affordable broadband internet, granting access to digital financial services, e-commerce, e-government services, remote learning, and telemedicine, proven to be invaluable in the wake of the pandemic. 

 Last year the World Bank and Georgia commemorated the 30th anniversary of their partnership, which officially commenced on August 7, 1992. Over three decades of close cooperation, the World Bank has played a significant role in the development, growth, and modernization of Georgia’s economy.   

 Another major milestone of the partnership is Georgia’s decision to Join the International Development Association (IDA) as a donor, after being an IDA beneficiary for over two decades, which was formalized on September 13, 2022.   

 The anniversary year of 2022 also marks the launch of one of the World Bank’s most critical and transformational projects in Georgia - the Human Capital Program for Results. Approved in March 2022, the $400 million Human Capital Program is the largest cross-sectoral investment ever extended to Georgia by the World Bank over the 30 years of partnership. The World Bank supports human capital development in Georgia through one other ongoing program - the Innovation, Inclusion, and Quality Project (I2Q), which aims to help Georgia narrow the skills gap between learning outcomes and labor market expectations. 

Last Updated: Apr 06, 2023

Recent Economic Developments

Growth in 2022 is estimated at 10.1 percent, buoyed by a surge in money transfer inflows, largely from Russia, and by the recovery of tourism. Economic activity is estimated to have grown by 5.8 percent in real terms in February and by 7.1 percent in the first two months of 2023.

Inflation continued to ease in March and reached 5.3 percent year-on-year, as prices for healthcare equipment and fuel fell significantly. Since March 2022, the National Bank of Georgia has kept the monetary policy rate unchanged at 11 percent. 

The current account deficit is estimated to have narrowed sharply in 2022 to 4.1 percent of GDP in response to robust growth in remittances, tourism proceeds, and exports of goods. While the external position remained supported by money transfers, mainly from Russia in February 2023, money transfers declined by 16 percent (month-on-month), which may indicate a gradual deceleration in inflows. 

The fiscal deficit narrowed to 3.5 percent of GDP in 2022, supported by strong fiscal revenues and the unwinding of COVID-19-related measures. Public debt stock continued to fall in 2022 to 41.3 percent of GDP, largely benefiting from the contained fiscal deficit and the appreciation of the Georgian Lari (GEL). 

Economic Outlook 

Growth is expected to ease to 4.4 percent in 2023, reflecting a projected slowdown among trading partners and tightened financial conditions. Despite continued pressures likely on the demand side, inflation is expected to fall gradually. Monetary policy is expected to remain tight until inflationary pressures subside. 

Despite the widening trade deficit, the current account deficit is expected to remain contained in 2023. Windfalls from the war in Ukraine are expected to stabilize in 2023 and subside in 2024, but the current account deficit should remain well below pre-war levels.

The 2023 state budget law reflects the Government’s commitment to fiscal consolidation and improved fiscal discipline by reducing the deficit and public debt to 2.9 percent and 38.7 percent of GDP, respectively. 

There are substantial risks to the outlook, reflecting the war in Ukraine and broader uncertainties. Monetary tightening in advanced economies, or a reversal in money inflows, could hinder growth, put pressure on the currency, and increase debt levels and financing needs. Currency mismatches due to dollarization and a high exchange-rate pass-through would also exacerbate vulnerability to currency depreciation. On the upside, tighter monetary and fiscal policy, with adequate buffers, is expected to help cushion a potential shock.

Last Updated: Apr 06, 2023