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beso namchavadze

Economist Evaluates the year of 2015 for Georgia’s Economy

GDP rose by 2.8% (averaged indicator for January to October period in 2015) after 4.5% upturn in 2014. Foreign direct investments declined by 17% to 1.019 billion USD (the January to September indicators), foreign trade plunged by 14%, while international tourism turnover rose by about 7% – these indicators reflect the outgoing economic year’s main parameters.

Beso Namchavadze Economic expert reviews the year of 2015 for Georgia’s economy.

Georgia’s economic growth in 2015 may be fixed at 2.7%-2.8% level. The initial forecast stood at 5% and the government was not revising the forecast until springtime.

Nevertheless, the Authorities lowered the forecast to 2%. I suppose the government could have more achievements, because our neighboring countries Armenia, Azerbaijan and Turkey are finishing the reporting period with high economic growth indicators, based on the January to September period reports. Even more so, Azerbaijan had serious losses following contraction in global oil prices. As to Armenia, the country is more dependent on the Russian Federation economy.

What could Georgia do and what has not the country done for better economic growth indicators? In practice, the government did not have counter-crisis plan. First statements on similar plan were made in late February 2015, when the GEL exchange rate slipped under 2.30 point.

The government has fulfilled some entries from this plan, but failed to fulfill another part. For example, the Authorities have not cut the budget expenditures, namely, administrative expenditures. Moreover, the government has reduced infrastructural costs that, on the contrary, are to boost the economic growth.

The privatization process was intensified and the state budget has already collected more than 200 million GEL, but the forecast was fixed at 300 million USD, that is, more than 700 million GEL. This signifies this plan has not fulfilled even by half.

The government has not abolished the profits tax either. The working process on the issue is protracted. Anyway, today the business sector expects the Government to abolish the profits tax in 2016.

I think the Authorities were to reduce taxes as part of the counter-crisis program, not only the promised profits tax, but also revenue tax, even more so the revenues plan has been fulfilled amid the intensified inflation processes. As to the government programs such as Produce in Georgia, Cheap Agro Credits and so on, these programs are far useful from the economic point of view, compared to all other expenditures, including in the social sector.

Investment inflows should be appraised as normal. Despite 33% year on year slowdown, we should remember that the record inflows were registered in 2014 and the 2015 downturn is compared to the 2014 reports. The 2015 FDI inflows are expected to reach 1.5 billon USD and I think this is a normal figure. However, the Georgian economy has showed that one billion USD investments do not suffice for high-rate economic growth dynamics.

Catastrophic contraction in FDI inflows was reported in the power sector, as the government expected 600 million USD, but the January to September inflows marked only 50 million USD.

As to the government’s positive decisions, I would name the fact the taking of internal debts was reduced by about 200 million GEL at the end of 2015. I also positively appraise a reduction of revenues tax from the real estate transactions. The housing sector has been recording two-digit growth in the last years thanks to growing volume of investment inflows.

The National Bank of Georgia (NBG) has also performed good job, because the GEL depreciation has been prevented through slight interventions. At the same time, we have maintained a considerable volume of foreign currency reserves.