Skills development will be essential in leveraging Georgia’s enabling business environment and facilitative infrastructure for higher foreign investment and growth, according to a new Asian Development Bank (ADB) report.
In its flagship economic publication, Asian Development Outlook (ADO) 2019, ADB projects Georgia’s gross domestic product (GDP) to grow by 5.0% in 2019 and by 4.9% in 2020, with higher investment spending.
“Georgia has proven attractive for foreign direct investments (FDIs) in the region with its business-friendly environment and increasing integration into global value chains,” said ADB Country Director for Georgia Ms. Yesim Elhan-Kayalar. “Georgia can reap significant economic dividends by leveraging its fast-developing facilitative infrastructure for economic connectivity within the country and in the region by further diversifying its economy and export base, while addressing skills mismatch in the labor market.”
Net exports, consumption, and investment are expected to support growth in 2019 and 2020, bolstered by higher infrastructure outlays. Wholesale and retail trade, finance, and construction are expected to expand in 2019. Higher investment should accelerate growth in agriculture to 2.6% in 2019 and 2.8% in 2020 with favorable weather.
Inflation is projected to accelerate to 3.2% in 2019 before slowing to 3.0% in 2020. Further tightening of credit standards should cut credit growth to 13% in 2019 and 12.5% in 2020. The central bank is likely to reduce the policy rate gradually towards the end of 2020 if inflation remains below 3.0%.
FDI, an important source of capital for Georgia because of low domestic investment and limited savings, nearly tripled from 2005 to 2018. However, FDI goes mainly into existing labor-intensive activities, rather than more complex sectors of the economy with higher value added, such as manufacturing. Shortage of qualified workers remains a constraint for attracting FDI. Stronger private sector involvement in training for entrepreneurship would help, as would efforts to encourage more women to enter business.
Downside risks to the forecast could emerge from external shocks and escalating trade tensions, tighter credit, rising global interest rates, difficulties in financial markets, or reduced capital spending. However, growth could be higher than the forecast if the outlook improves for key trade partners such as Azerbaijan and the Russian Federation.
ADB has supported Georgia since 2007 and is one of the country’s largest multilateral development partners. Sovereign and nonsovereign loans to Georgia total $2.8 billion. ADB’s key development priorities in Georgia include fostering inclusive and sustainable economic growth, reducing poverty, enhancing regional connectivity, and improving public service delivery.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.