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Georgia will Need 80-90 years to Come up with EU by Annual 3.3% Economic Growth

After the October 8 elections, a new parliamentary period will start. There is much probability that Georgian Dream will maintain majority of votes at the parliament and this consideration is confirmed by all inquiries and forecasts.

Let’s overview the past 4 years in terms of economic indicators – what achievements our country has made and what challenges are relevant today.

In 2012-2016 many economic parameters have improved, but low economic growth is the main challenge and this factor is in direct relation with the living condition of our citizens. For example, in 2013-2016 Georgia’s averaged economic growth pace made up 3.3%. This figure makes the country a regional leader, but this indicator remains a very low achievement for a developing country.

As to the last decade, in 2006-2015 Georgia’s averaged economic growth made up 5.1% and this indicator also makes our country a regional leader. In the same period, Latvia’s economic growth made up 1.8% on average, Estonia – 1.9%, Russia – 2.5%, Lithuania – 2.6%, Moldova – 3.6%, Turkey and Poland – 3.8%. At the same time, over the past decade, GDP per capita has increased from 4900 USD to about 10 000 USD. Despite similar upturn, Georgia is ahead of only Armenia and Moldova among European countries.

Moreover, our country has considerably improved positions in many international ratings and it occupies leading positions in them, including in terms of business doing simplicity (2016) Georgia ranks 24th, in the economic freedom index (2016) Georgia ranks 23rd, and according to the Global Corruption Barometer (2013), only 4% of inquired respondents confirm to have paid bribes and this figure makes our country  one of the leaders in the world in this category.

We have serious advancements in the Global Competitiveness Index, where the country ranked 88th in 2012 and advanced to the 59th position in 2016.

It should be also noted that Georgia has considerably improved positions in the rating in terms of property rights protection. For example, according to the 2011-2013 reports, Georgia deserved low rating in property rights protection field and it ranked 120th, because for many years property rights were violated.

However, in the 2016-2017 report, Georgia improved positions by 4 places in the rating and  moved to the 54th position. However, the 2015 report was a breakthrough, when Georgia improved positions by 27 places and moved to the 58th position in terms of property rights protection. According to the business bribery risks (2014), Georgia ranks 11th in the rating.

In 2015 the unemployment index recorded the 12 years’ low. In 2015 the quantity of employed citizens exceeded 1.75 million persons. As a result, the unemployment indicators reduced by 12%. It should be also noted that employment has mainly increased thanks to private sector.

In 2014 the private sector employed 441 000 persons, the figure rose to 479 000 persons in 2015. At the same time, in previous years 50% of the employed citizens were engaged in the agriculture sector, while in 2015 this ratio declined to 48.6% for the first time.

Employment mainly increased in the service field, where quantity of employed citizens in total statistics rose to 45% from 43% in 2014-2015.

Over the past 4 years, besides many macroeconomic advancements in international ratings, as noted above, low economic growth is Georgia’s main challenge. As a result, the country still occupies the the last third place in terms GDP per capita among European countries. Economic growth particularly narrowed in 2015-2016. For example, Georgia’s economic growth pace in 2015 made up 2.8%.

In the first half of 2016 the growth still remains weak for Georgia’s standards. Note that over the past 3 years the highest quarter economic growth was recorded in the 3rd quarter of 2013, when Georgia’s GDP rose by 7.6%. As to 2016, in the first quarter’s economic growth marked 2.6%, in the second quarter – 3%. According to January-August indicators, the Georgian economy grew by 2.8% and the country comes behind Armenia (3%) and is ahead of such countries in the region as Ukraine (-9.9%), Belarus (-3.9%), Russia (-3.7), Moldova (-1.1), Azerbaijan (1.1) and Kazakhstan (1.2%).

Georgia ranks 105th among IMF 190 member countries in terms of economic growth paces and 94th among the world’s 151 developing countries. In this respect, Georgia recorded the best indicator in 2007 – 9th place in global rating.

Quick economic development is of vital importance for Georgia. Currently, heavy economic situation is aggravated by tensions with Russia. Consequently, if we do not accelerate economic growth, the country will remain vulnerable to external enemies. Georgia has a developing economy and considerably comes back of EU countries. Therefore, it is necessary for us to achieve higher economic growth compared to developed countries to come up with them as soon as possible. For example, today (according to the 2015 indicators) Georgia has 8 times lower GDP compared to averaged indicator of Europe. EU’s annual economic growth makes up 2% on average.

Therefore, Georgia has to attain at least 7-8% annual economic growth to attain the EU level. Even averaged 5% economic growth will enable Georgia to have twice lower economy than  EU in 50 years. To come up with EU, Georgia’s annual GDP  pace must be 7% and more. 7% annual GDP growth will enable Georgia to attain the current European level in only 40 years, and for example 10% upturn will enable the country to attain the EU level in 25 years.

Therefore, 3.3% upturn over the past 4 years makes the country a regional leader, but this is not sufficient to attain European level, because by this pace the country will attain EU in 80-90years.

Over the past 4 years Georgia was in a certain transient period because of change in power and the situation was aggravated by currency crisis and regional tensions, but our country has coped with all these challenges in satisfactory manner. Therefore, we should not lose the nearest 4 years by complaints about the past and fight with the United National Movement, because if Georgia fails to accelerate economic growth, in 20-25 years the country will be depopulated  or will be absorbed by the northern neighbor.

Therefore, the new government, despite its configuration (including coalition government) must make focus on quick economic development and must carry out efficient reforms.

By Merab Janiashvili
Economic Analyst
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