Impact of the Ukraine-Russia War on Georgia - GALT & TAGGART Names Two Scenarios

Galt & Taggart published a report on the impact of the Russia-Ukraine war on the Georgian economy and named the expected scenarios.

Galt & Taggart's first scenario envisages the end of the Ukraine-Russia war in 1-2 months, in which case a 3% GDP growth and a 7% inflation rate are expected in 2022. According to Galt & Taggart, $1 will be in the range of 3.25 GEL, and tourism is also expected to recover by 75%, which was 85% in the baseline scenario.

The second scenario, ie a protracted solution to the Russia-Ukraine war and the imposition of additional sanctions on Russia.

In this case, Galt & Taggart expects the Georgian economy to shrink by 1% and inflation to rise to 9%. Also, under this scenario, the dollar exchange rate will reach the 3.4 GEL mark. As for tourism, instead of the 85% recovery forecast in the original forecast, the recovery will be lower than 60%.

It should be noted that in 2021, revenues from exports, remittances, tourism, and foreign direct investment in Georgia from Russia and Ukraine amounted to 9.6% of GDP.

The main negative impact is expected by the reduction of exports to these countries, which will be followed by a negative impact on tourism.

Russia's share in remittances has decreased significantly in recent years.

Also, financial ties are very limited and there is only 1 bank (VTB) in Georgia, which is connected with Russia.