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Georgia Loses Leading Regional Position in terms of Economic Growth Pace

Armenia’s GDP Grows Twice Faster in 2018.

Over the past 3-4 years, especially in 2017, government officials in Georgia frequently reiterate that despite low economic growth Georgia is a regional leader in terms of economic growth paces. Regretfully, the reality is different. According to Geostat, national statistics service of Georgia, in January 2018, compared to January 2017, economic upturn  made up 4.4%, against 5.2% upturn in January 2017. According to early estimations, in 2017 Georgia’s economic growth  constituted 4.8%, while the 2018 forecast is 4.5%. Meanwhile, International Monetary Fund (IMF) forecasts 4.2% upturn in 2018 and World Bank (WB) prognosis constitutes 4%.

At the same time, World Bank expects 3,8% growth in Armenia in 2018 and 4% growth in 2019-2020 years. However, despite these forecasts, Armenia has recorded twice better economic indicators. In  January-February 2018 Armenia’s GDP growth made up 8.6%, twice higher indicator than in Georgia. Armenia’s economy started rapid recovery in the fourth quarter of 2017, when our neighboring country recorded 11.2% growth in GDP . Economic progress in the fourth quarter made essential effect on total indicators of 2017. As a result, Armenia’s economic growth in 2017 made up 6.4%, more than the initial forecast.

As to Georgia, Geostat has published the 2017 economic growth report, under which the 2017 economic upturn made up 5%, up 0.2% than the initial forecast. This is the 5 year’s high, however, even this indicator is lower compared to Armenia and Turkey.

As to Turkey, it is an absolutely different case. In 2017 our southern neighbor came up with the global leaders in terms of GDP growth. In 2017 economy of Turkey grew by 7.3%. Particular high indicator of economic growth was recorded in the third quarter, when economy of Turkey rose by 11.1%. As to IMF forecasts, economy of Turkey will increase by 4.3% in 2018-2019. It should be noted that Turkey is a developed economy, where high GDP growth paces are difficult to attain, compared to developing countries, for example, Armenia and Georgia.

Meanwhile, the economic team of Georgian government reiterates the same messages that our country is regional leader in terms of GDP growth pace 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», former Minister of Economy and Sustainable Development of Georgia Dimitri Kumsishvili said.

In 2017 Georgia recorded higher-than -expected economic upturn, he said.

«Average GDP growth in 2017 made up 5%. The year of 2018 started with impressive economic upturn in Georgia. According to early estimations, in January 2018 economic growth made up 4.4%, while according to government forecasts, economic upturn will be 4.5% in 2018. It is important that Georgia will have one of the highest indicators in 2018-2022 in the region – 4.9% on average», Dimitri Kumsishvili noted.

According to IMF and WB forecasts, Georgia slightly surpasses the neighboring countries in terms of economic growth for the coming 4 years, but even the previous year has showed that forecasts frequently fail. For example, World Bank forecast 5.2% upturn in 2017, but in vain, while Turkey and Armenia considerably surpassed the initial economic growth forecasts.

Regretfully, Government of Georgia does not make due conclusions from our history, continues economic policy that has not brought essential benefits. As a result, Government justifies 5% and lower GDP growth and asserts we have the highest paces in the region. Economic growth model of Georgia still relies on foreign investments. Priority is given to FDI inflows and we think this is an only correct mechanism of development and progress. Despite Georgia attracted a record amount of FDI in 2017, economic boom was not attained in the country.

If we analyze the history, the same happened in previous years too, but we have not noticed this for some reasons. For example, in 2006-2007 FDI dynamics is in correlation wit GDP growth, when we had 11% upturn in this period on average, but in 2006-2007 economic growth was preconditioned by large-scale privatization of state-owned properties and high economic growth paces in the region. In 2007-2008, 17% of FDI came from privatization, when in the following years FDI inflows declined from this direction and over the past years this indicator has dropped under 1% in total FDI inflows. The 2017 statistics also proves this, when record investments brought only 5% growth in GDP.

In 2006-2007 Georgia attracted the highest volume of FDI and GDP growth hit a historical high  (11% on average), but economy of neighboring Armenia rose by 13.5% on average in 2006-2007 amid only 1.15 billion USD FDI inflows, while Georgia had triple higher inflows – 3.2 billion USD in the same period. As to Azerbaijan, this country beat world record in 2006, when GDP growth made up 34.5%. In 2005-2007 averaged economic growth made up 28.6%.

If Government of Georgia does not revise economic development priorities and does not make accents on domestic production advancement, Georgia will always remain a losing country and it will take more than 80 years to come up with the averaged living conditions of Europe.

By Merab Janiashvili
Economic Analyst
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