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ISET: Economic Growth above 2% is not Realistic

An interview with Senior Researcher at  the research center ISET Maya Grigolia

In 2015, the Georgian government planned 5% growth of the economy, but now it is obvious that it will not exceed 2%. How realistic is this figure and is it low or high taking into account the situation in the region?
The Russian-Ukrainian conflict has a significant negative impact on the situation in the region. Economic growth in Russia, Ukraine, Armenia, Belarus and Moldova in the current year is projected to be negative. These countries are in recession. In addition, drop in  international energy prices has an additional negative impact on petroleum exporting countries. For example, the forecast for economic growth in Azerbaijan is 0, 6% (in 2014 – 2, 8%).

Georgia has an open economy, which is highly dependent on imports and foreign investment, respectively, it is very sensitive to external risks. We cannot influence the situation in the region, respectively, we  import all the risks that exist in the trading partners. In this situation, a  2% growth is not such a low rate. If there are  no additional geopolitical risks, it is quite realistic.

In the current situation, whether a growth above 2% is realistic? Can the current government work effectively? What should the government have done and what it has  failed to do?
External instability was reflected in the national currency and in November 2014 our economy has entered a zone of turbulence. Accordingly, it would be unrealistic to expect growth of more than 2%. The situation in the region does not give us grounds for reassurance, and the government should work as efficiently as possible to solve domestic issues, those that can be solved.

Internal factors include the creation of maximum favorable conditions for business. consultation with the entrepreneurial class in making economic laws is also crucial. For example, the recommendation of the EU should be taken consistently and in a reasonable time, not for one month. The main function of the state  is to develop reasonable rules of the game and create an environment for the legal, social, economic and political development.

There is an opinion that the budget of Georgia took on too many social obligations that led to the lack of the funds to support the business. What can you say about the country’s budget, if it is properly planned?
Of course, the heavy social background interferes with economic development and therefore a priority of social issues in Georgia is justified. But  spending  still should be more targeted, and the funds should be allocated more efficiently. Social spending should increasingly be focused on those sectors of the population that are in need the most. This will free up the budget funds that can be spent on infrastructure projects and the strengthening of state institutions.

In general, what prevents Georgia to attract investments?
Only  stable political and economic environment can attract investors. A country in transition is inconceivable without reforms, but they must be carried out consistently and deliberately, particularly if they relate to the introduction of new regulations for  business. A quick, unexpected, and often directed against the business economic decisions create a sense of uncertainty among investors.

What should the government do to promote economic growth?
The simplest answer to this question lies in the fact that the country should accumulate physical capital, encourage investment, increase human capital. A reform of  the education system is definitely needed, as well as the  introduction  of  new technologies, adapting the experience of developed countries, which again is connected with education.

For all this, it is necessary to create strong state institutions and implement reasonable rules of the game. Providing  property rights, education and health reforms , the fight against corruption and crime. It should be understood that all this will not give quick results, as this is  a long process.