The World Bank in Georgia

Country Context

Georgia has made much progress over the past decade. Georgia has been growing faster than other upper middle-income countries, and GNI per capita increased from $3,048 in 2010 to $5,073 in 2022 (constant 2015 USD). The poverty rate (measured by the national poverty line) was more than halved over the same period. Georgia has a solid foundation to continue growing fast, including a favorable business environment, but it also faces some structural challenges. These include population ageing, weak productivity growth, limited high-quality job creation, and poor learning outcomes. More than a third of all workers remain engaged in low-productivity agriculture. Despite its trade openness, reliance on tourism, relatively high levels of dollarization, and dependence on foreign savings, Georgia has shown resilience to recent shocks, supported by sound macroeconomic management, although some fiscal risks stemming from state-owned enterprises remain. Going forward, getting ready for the energy transition, improving climate adaptation and environmental protection would also be key. The application for EU candidacy initiated in 2022 provides opportunities for further income convergence while requiring significant and sustained reforms. 

Last Updated: Oct 09, 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 expired at the end of FY23.  An update of the Systematic Country Diagnostic was completed in September 2023, and a new CPF for FY24-28 is under preparation.

As of September 8, 2023, the active lending portfolio amounts to $1.47 billion across 14 investment projects. Disbursement stands at $607.81 million (41.32%). Under the CPF, the portfolio has been rebalanced to include more financing in human development. 25% of the total commitment addresses challenges in education, health, and social protection, and 30% 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 ($50 million); and the Georgia Resilient Agriculture, Irrigation, and Land Project ($75 million).  These two projects indicate a more pronounced focus on supporting 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) ($25 million, the first phase of MPA). 

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. 

Last Updated: Oct 09, 2023

Recent Economic Developments

Growth remained robust in H1 2023, although it eased to an estimated 7.6%, compared to 10.1% in H1 2022, driven by a rebound in private consumption. Service exports remained boosted by continued recovery in tourism.  

Inflation has declined sharply. Headline inflation fell to -0.1% (YoY) in August 2023, driven by lower food and fuel prices and a strong Georgian Lari (GEL). In response, the National Bank of Georgia reduced the monetary policy rate by 25 bps in August and September, to 10.0%. 

During H1 2023, exports and imports grew respectively by 19.3% value and 19.6% (YoY) in USD, mostly driven by trade of used cars. FDI inflows recorded an improvement in H1 2023. Money transfers continued to support Georgia's external position and increased by 32.5 % in H1 2023 (YoY). International reserves increased to $5.4 billion, or approximately 4.4 months of import cover.

Outturns for H1 2023 showed a small overall surplus and a primary surplus at 0.7% of GDP, due to the strong revenue performance. The public debt-to-GDP ratio continued to fall due to rapid economic growth and appreciation of the GEL.

Economic Outlook 

Growth is expected to slow in H2 2023 and reach 5.9% this year, due to a slowdown in trading partners and easing of money transfer inflows. Inflation would end 2023 below the 3% target rate. Monetary policy is expected to be eased to support economic growth, while remaining prudent. 

Given the widening trade deficit, the current account is projected to deteriorate to 6% by the end of 2023. The inflow in money transfers is expected to ease in the second half of 2023 and subside further in 2024. 

The deficit is projected to reach 2.9% of GDP in 2023. To boost revenue collection, the authorities are committed to the rationalization of tax expenditures. 

Substantial risks remain, reflecting Russia’s invasion of Ukraine and broader uncertainties. A faster reduction in money inflows, a decline in tourism inflows, further monetary tightening in advanced economies, or an increase in global commodity prices, could hinder growth, put pressure on the currency, and increase debt levels and financing needs. Sound macroeconomic management—including a flexible exchange rate, an inflation targeting framework, and the fiscal rule— coupled with the ongoing IMF program serve as mitigating factors. 

Last Updated: Oct 09, 2023