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Georgia Loses Leading Positions in terms of Economic Growth

In 2018 Armenia’s GDP Growth is Twice Faster compared to Georgia.

Over the past 3-4 years, especially in 2017, government officials frequently reiterate that, despite low economic growth indicators, the country is a regional leader anyway. Regretfully, the reality is different. According to preliminary estimations by Geostat, national statistics service of Georgia, in January 2018, as compared to January 2017, Georgia’s economic growth constituted 4.4%, while the growth marked 5.2% in January 2017. According to preliminary information, in 2017 Georgian economy grew by 4.8%, while the 2018 forecast is 4.5% upturn. The GDP will grow by 4.2% according to IMF and by 4% according World Bank prognosis.

Despite IMF forecasts 3.8% upturn in Armenia in 2018 and 4% growth in 2019-2020, the country has showed twice better indicators. In January-February 2018 Armenian GDP growth marked 8.6%, twice higher compared to Georgia’s indicators.

Armenia’s economy started fast recovery in the fourth quarter of 2017, when our neighbors achieved 11.2% upturn in October-December 2017. The economic boom in the fourth quarter influenced the 2017 total indicators considerably.  In 2017 Armenia’s economy grew by 6.4% and exceeded the planned indicator.

As to Georgia, Geostat published the 2017 economic growth report, according to which, economic growth in 2017 marked 5%. These indicators of  Geostat exceed the initial forecast by 0.2%. This is the highest indicator over the past 5 years, however, it is lower compared to indicators of Armenia and Turkey. Last year Turkey came up with the global leaders in terms of GDP growth, as a result o 7.3% upturn. Especially high economic growth was recorded in the third quarter of 2017, when economy of Turkey grew by 11.1%. As to the current year, according to the IMF prognosis, economy of Turkey will grow by 4.3% in 2018-2019. It should be also noted that Turkey is a developed economy, where it is much more difficult to attain high growth in GDP, as compared to developing countries, for example in Armenia and Georgia.

Amid similar indicators in our neighboring countries, our Government continues making the same messages that Georgia remains a regional leader in terms of GDP growth and this tendency will be maintained in the near future. « It is important that in 2018-2022, Georgia will have one of the highest economic growth paces in the region», the first vice Prime Minister Dimitri Kumsishvili noted.

In 2017 Georgia recorded higher-than-expected economic growth, he added.  «Average growth in GDP over the past year constituted 5%. The year of 2018 started with impressive economic growth. According to preliminary estimations, in January economic growth marked 4.4%, while the Government forecasts 4.5% upturn in 2018. It is important that in 2018-2022 Georgia will have one of the highest growth paces in the region – 4.9% on average», Dimitri Kumsishvili said.

Despite this, according to IMF and WB forecasts, Georgia slightly surpasses neighbors in terms of economic growth paces in the next 4 years. The past year has also showed that forecasts are not frequently justified. For example, WB forecast 5.2% upturn in 2017, but the country could not reach this forecast, while Turkey and Armenia considerably surpassed initial indicators of the mentioned institutions.

Regretfully, Government of Georgia does not learn lessons from our history, continues economic policy that has not brought considerable benefits. As a result, they justify 5% and lower economic growth, as if it is the highest one in the Region. Economic growth model of our Authorities still depend on foreign investments. They think that the main thing is to attract FDI and this is only right way for development.

Despite  a historically record inflow of foreign direct investments (FDI) in 2017, economic boom was not recorded. The same tendency emerged in previous years too, but we have not made respective conclusions of these cases. For example, in 2006-2007 we had 11% averaged annual growth. However, the 2006-2007 economic growth was preconditioned by privatization of a huge volume of state property and high economic growth paces in the region.

In 2007-2008 the ratio of privatization in FDI was 17%, while in the next years FDI inflows declined and it dropped below 1% over the past years. Statistics of the past 2017 year also shows that  record investments constituted only 5% upturn in GDP.

In 2006-2007 when Georgia attracted a record volume of foreign investments and GDP growth hit historical maximum (11% on average), economy of our neighboring Armenia rose by 13.5% on average, while in those years FDI inflows to Armenia constituted only 1.15 billion USD, while in the same period FDI inflows to Georgia was triple higher – 3.2 billion USD.

As to Azerbaijan, in 2006 its GDP grew by record 34.5%, while in 2005-2007 averaged growth constituted 28.6%.

If Government of Georgia does not change economic development priorities and accents are not made on domestic production development, our country will never develop and it will take more than 80 years to come up with average level of Europe.

By Merab Janiashvili
Economic Analyst
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