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Natural Disaster in Tbilisi Reduced Economic Growth by 1%

As a result of Tbilisi flood,  the economy of Georgia faces  a new challenge, because of the natural disaster GDP growth in 2015 will fall by 1%. The process will depend on the effectiveness of projects to be implemented by the government and the size of foreign aid, the amount of which is still to be determined.

According to official data, in the 1st quarter GDP grew by 3.2%,  in 2015  a 2%- growth is expected. Because of a large-scale disaster in the capital, economists believe that growth will fall further by 1%, and the reason for this is that the government will have to suspend the planned projects and direct the funds  to overcome the consequences of the flood. As  reported, in order to combat the effects of the disaster, the Government set up a special commission, which will develop a package of short and long term measures.

Tbilisi Mayor David Narmania says that  it is planned to broaden mouth of the river  in the Vera Valley and create the reserve, in addition, to make changes  to the overpass project, which was built there by the previous government. The government claims  that the direct damage from the flood is estimated at GEL 100 million. Part of this amount will be covered from  the state budget, that is, the funds will be allocated by freezing other projects.

The government also hopes to get help from donors. If foreign organizations do not give money, the second option is considered-  to change the targeting of already allocated funds, which are aimed at the implementation  of other projects. The government also hopes to get help from donors. If foreign organizations do not give money, the second option is considered-  to change the targeting of already allocated funds, which are aimed at the implementation  of other projects. Finally, in any case, new infrastructure projects are under threat of stoppage. According to the expert Soso Archvadze, the  disaster  had a direct impact on the economy.

“We still have  to spend the funds for the restoration of what has already been built. The money should have been directed to new projects, new jobs. Of course, all this will not be able to contribute to economic growth. A  timely aid  from the donors is of great importance in such a situation, “- he says.

He brings  an example of  August 2008 when rapid international assistance allowed Georgia to maintain economic stability, and eventually, amid a large-scale international financial crisis, the decline in the economy was much smaller than in the donor countries themselves.

“Now the country cannot receive the economic aid of the same scale, moreover, donors still do not decide for themselves what size it will be while losses are very large. The direct loss  makes about GEL 150 million but taking into account  the long-term task of creating the infrastructure to protect the population from future disasters, we are talking about hundreds of millions. In the next  3-4 years, the country will have to spend  GEL 500 million- 1 billion. This is a very substantial sum that will be  directly reflected in GDP. We can expect that the disaster will reduce the economy by  1%,”- Soso Archvadze notes.

Indirect losses may be apportioned over several years, but in that case the country will not be able  to achieve the planned growth rate of 4-5% – the expert explains. The expert Avtandil Silagadze believes that  direct losses from the flood exceed 1% of the budget.

“So what happened will cause a severe blow to the economy of Georgia and the  budget. Although we can’t rule out the optimistic scenario, particularly if international donors provide generous assistance and finance a significant part of the restoration work. Then the pressure on the economy will be less than we expect. In general, natural disasters of this level always affect GDP and lead to budget cuts. First, we should  determine the actual amount of the loss, and I guess that it exceeds  GEL 100 million announced by  the government,”- the expert stresses.