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Georgian economy
Sketch by Ilia Chrelashvili/Caucasus Business Week

Year of Economic Recovery – Key Economic Events in 2017

After 2-year low economic growth, in 2017 Georgia’s GDP growth pace exceeded the planned indicator. It should be noted that in 2015-2016, along with currency crisis, economic growth in our country was under 3%.

To be precise, GDP upturn in 2015 marked 2.9%, while the figure hit 2.8% in 2016. Economic growth pace in January-September of 2017 constituted 4.7%, up from the government forecast made at the beginning of 2017 (4%).

Growing exports has considerably accelerated economy, as well as foreign direct investments, rising volume of money transfers and record revenues from tourism sector. At the same time, the year of 2017 recorded instable GEL exchange rate and this factor has grown into tradition over the past 3 years, along with high inflation index.

Economic Growth

According to Geostat, national statistics service of Georgia, averaged economic growth in January-October constituted 4.9%. The 2017 state budget planned economic growth at 4%. Consequently, this indicator exceeds the government-determined forecast growth by 0.9%.

The highest economic upturn in 2017 was recorded in October, the lowest was registered in April: January – 5.2%, February – 4.4%, March – 5.3%, April – 2.1%, May – 5.3%, June 4.6%, July 3.8%, August 4.3%, September -5%, October – 5.7%.

29% upturn in exports  has made positive influence on growth, as well as 17% upturn in turnover of commercial organizations. The private sector’s turnover in October made up 5.8 billion GEL. In early October IMF raised Georgia’s economic growth forecast for 2017 and 2018. This year the IMF forecast 3.5% upturn, while revised forecast is 4.3%. The 2018 revised forecast is 4.2%, up 0.2% as compared to the previous forecast of IMF.


General price level was growing throughout the year. In November 2017 Georgia’s inflation level marked 1.1% compared to the previous month, while annual inflation level constituted 6.9%. It is worth noting that this year National Bank of Georgia (NBG) had planned annual inflation at around 4%, however, after February  the general price level exceeded the target indicator and the figure was not dropped below 4%.

Over the past months the general price level exceeds 4%, however, National Bank of Georgia (NBG) had stubbornly repeated that it was not necessary to tighten monetary policy. It is interesting that through the whole autumn NBG was saying it had no plans to tighten monetary policy or make currency interventions to stop GEL exchange rate depreciation. NBG was saying that the process did not make influence on growth in general price level. And in November we received an absolutely different result, when annual inflation hit 6.9%. At the same time, the averaged inflation level has been growing YTD and it is unclear why NBG had such an optimistic approach to this issue.

Foreign Trade and Exports-Imports

According to Geostat, in January-October 2017 Georgia’s foreign trade turnover (excluding undeclared trade) made up 8566.1 million USD, up 12.7% year on year; including exports marked 2203.1 million USD, up 29.4%, while imports constituted 6363 million USD, up 7.8%. Georgia’s negative trade balance made up 4160.0 million USD, that is 48.6% in foreign trade turnover. In the same period, exports without re-exports totaled 1700.6 million USD, up 27.6% as compared to the same period of 2016.

However, the current exports potential does not enable to make serious achievements, because our exports mainly consists of agriculture products and semi-finished goods. To expand exports, ensure lower negative trade balance and attract more foreign currency to the country, it is necessary to arrange powerful domestic production.

Foreign Direct Investments and Money Transfers

In January-September 2017 Georgia received 1.34 billion USD FDI, up 2.9% as compared to the same period of 2016. According to Geostat, transport sector ranks first in terms of investments, where 447 million USD was invested.

According to Geostat, Georgia’s top three investor countries are as follows: Azerbaijan – 378 million USD, down 12% year on year, Turkey – 259 million USD, down 44% and United Kingdom – 175 million USD, down 30%.

As to money transfers, in January-November 2017, money transfers made up 1.241 billion USD. According to NBG, in November money inflows constituted 122.1 million USD, that is 326.3 million GEL, up 24.8% (up 24.3 million USD) as compared to November 2016.

Free Trade with China and Iron Silk Road

On May 13, 2017 in Beijing Ministry of Economy of Georgia and Ministry of Commerce of China signed a document on free trade.

After enactment of the free trade agreement with China (on January 1, 2018), a huge market opened for Georgia-made products and services. The market records about 1.4 billion consumers. Georgian entrepreneurs are able to export products to Chinese market without additional customs tax. According to the agreement, 94% of Georgian products will be exempted from customs tax on Chinese market.

On October 30, Baku-Tbilisi-Karsi railroad was officially opened in Baku. The railroad connects South Caucasus and Central Asia with Europe and it is considered to be Iron Silk Road. Baku-Tbilisi-Karsi railroad construction started in 2008. Before, on February 7, 2007, President of Azerbaijan Ilham Aliev, President of Georgia Mikheil Saakashvili and Prime Minister of Turkey Recep Tayyip Erdoghan signed a trilateral agreement on a new railroad. Total length of Baku-Tbilisi-Karsi railroad is 826 kilometers, including 254 kilometer section in Georgia. The Georgian section of the Baku-Tbilisi-Karsi railroad includes 22 bridges, 13 stations, 24 flyovers and 4 snow protection galleries.

The project will connect Europe with Asia with far cheaper and faster ways and our country will receive huge benefits, because many countries will be interested to have stable environment in Georgia, along with economic benefits – we will receive investments and more employed citizens.

Georgian Economy in International Ratings in 2017

International Rating companies Moody’s, Fitch Ratings and S&P conferred a new credit rating to Georgia in 2017. Moody’s improved Georgia’s credit rating from Ba3 to Ba2, and appraised the condition level of the country as Stable. According to Fitch Rating, the credit rating remains unchanged and it stands at BB minus, while economic development outlook is Stable.

Georgia’s credit rating BB minus is a low rating that is characteristic to developing low-income countries. According to Fitch, this indicator was preconditioned by a high deficit in the tax balance of the country. According to S&P estimations, Georgia’s sovereign rating remains at the level of BB- and the rating outlook is Stable.

The 2017-2018 Global Competitiveness Index  by World Economic Forum describes competitive capacity of 137 countries and Georgia ranks 67th, down from 59th position in the 2016-2017 rating. The country has lost 8 positions. Georgia’s summarized score has not changed and remains at 4.3 point, but the rating has worsened after other countries  improved their positions. As to Georgia’s whole position, it should be noted that since 2012 the country was improving indicators. For example, Georgia ranked 88th in the 2011-2012 Global Competitiveness Index. By 2016 the country advanced positions to the 59th place, but this year we lost 8 positions.

The World Bank Group’s annual report Doing Business 2017 names Georgia to be 16th among 190 countries in terms of business doing simplicity. In the 2016 rating, Georgia ranked 23rd and the country advanced positions by 7 places. Currently, the rating leaders are New Zealand, Singapore and Denmark. Libya, Eritrea and Somali occupy the last positions. From the former Soviet countries Only Estonia (12th) and Latvia (14th) run ahead of Georgia.

According to the research results, in Europe and Central Asia region Georgia ranks third after countries with the highest scores – Macedonia and Latvia. Moreover, Georgia is among 10 advanced countries, which have considerably improved their indicators on the global level.

Commercial Banks Make Record Profits

In November 2017 net profits of commercial banks rose by 48.1 million GEL. Consequently, in January-November 2017, net profits of commercial banks constituted 717.2 million GEL, up 26.5% year on year (up 150.6 million GEL). In January-November of 2016 net profits of commercial banks constituted 566.5 million GEL.

At the same time, commercial banks also grow interest profits. According to January-November indicators, the figure marked 2.4 billion GEL. In January-November 2016, interest profits of commercial banks was 2.1 billion GEL. Like previous years, in January-November 2017 commercial banks received a major part of revenues from retail loans. The figure marked 1.4 billion GEL in January-November period, which is 52.1% of total revenues from loans.

Volume of revenues from corporate loans are about twice lower and it amounts to 776.3 million GEL. Commercial banks also receive significant benefits in the form of interest-free revenues. The sector’s benefits in January-November 2017 marked 1.3 billion GEL.

It is worth noting that over the past several years net profits of commercial banks are growing and they beat new records in almost all years.

2012  -134.2 million GEL

2013 – 389.1 million GEL

2014  – 474.8 million GEL

2015  – 537.3 million GEL

2016  –  631.8 million GEL

By Merab Janiashvili
Economic Analyst
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