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Kvirikashvili’s Effect Lasted Only Two Years

Economic growth under Irakli Gharibashvili’s government was 3.75%; Kvirikashvili raised the rate to 3.9%.

Prime Minister of Georgia Giorgi Kvirikashvili has filed a resignation referring to different visions between him and the ruling economic team on economic policy issues.

“The ruling team and I have different positions regarding certain subjects, namely, regarding the government’s economic policy. I would like to note that in recent months the chairman of the ruling party and I had different positions regarding a number of essential issues. I think today the time has come when the chairman of the party should be able to staff the ruling team according to his own considerations,” Kvirikashvili said.

The Prime Minister’s resignation was preceded by noisy discussions of a UNICEF report, according to which the poverty level rose in Georgia between 2015 and 2017. According to the 2017 statistics, 5% of the population is extremely poor, including 6.8% of children and 3.7% of pensioners. The ratio of the extremely poor has increased (including children and pensioners) compared to both 2015 and 2013.

UNICEF conducts a Welfare Monitoring Study every two years. The report appraises the poverty and welfare levels of the population by analyzing consumer costs. People who spend less than 1.25 USD a day are considered to be extremely poor (or about 83 GEL a month for an adult).

In 2017, compared to 2015, the general poverty level has also increased (the bottom margin of the general poverty level is 2.5 USD a day, or 165.5 GEL a month for an adult). The ratio of people in general poverty has risen to 21.7% from 18.4%. An extreme increase in poverty levels was recorded among children, a change from 21.7% to 27.6%. The number of pensioners living in general poverty has also increased. The comparative poverty indicator (comparative poverty equals 177 GEL for an adult per month) has also increased. The number of children in comparative poverty \ has significantly grown, from 26.8% to 31.6%.

In his resignation speech, Kvirikashvili comprehensively analyzed his economic policy, and noted that the government deliberately made several economic decisions that brought high economic growth in the short- and mid-term, but failed “to bring benefits to the low-income part of our population.” We should emphasize the GEL exchange rate devaluation. Kvirikashvili noted that the National Bank of Georgia (NBG) deliberately refused to use foreign currency reserves to curb the GEL exchange rate depreciation. As a result, GEL devaluation hit 40%, and Georgian citizens’ costs to serve credit obligations considerably increased.

“I would like to express my gratitude to Giorgi Kvirikashvili, the person who implemented a lot of reforms in our country. Economic growth by the time of his appointment was 2.8%, and he left the government with a 6.5% upturn. I believe the current positive tendencies are of an irreversible character,” the former Minister of Economy and Sustainable Development Dimitri Kumsishvili said in a statement on his Facebook profile, referring to Kvirikashvili’s resignation.

Kumsishvili emphasized the 6.5% economic upturn, which was recorded in April 2018. This is not relevant compared to the 2015-2016 annual indicators. However, if we take into account average economic growth, we see that under Gharibashvili’s government (2014-2015), the average growth of the Georgian economy was 3.75%, and the figure rose to 3.9% under Kvirikashvili’s government in 2016-2017.

Despite a slight improvement in GDP growth paces, during this period other economic processes damaged the solvency of Georgian citizens. As a result, the poverty level increased.

It is noteworthy that Giorgi Kvirikashvili was appointed as Prime Minister in December 2015. In the several months after his appointment, the business sector recorded encouraging signals and this effect was called “Kvirikashvili’s Effect.” If we analyze key macroeconomic parameters from 2015 to 2017, we see that Kvirikashvili’s Effect did not prove very effective.

  • Economic Growth: 2015 – 2.9%; 2016 – 2.8%; 2017 – 5%;
  • GDP per capital: 2015 – $8550.9; 2016 – $9146.4; 2017 – $10204.4;
  • Inflation: 2015 – 4.0%; 2016 – 2.1%; 2017 – 6%;
  • GEL exchange rate: December 2015 – 1$ = 2.4067 GEL; December 2016 – 1$ = 2.6562 GEL; December 2017 – 1$ = 2.6131 GEL; June 13, 2018 – 1$ = 2.4623 GEL.
By Merab Janiashvili
Economic Analyst
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