ľ¹ÏÓ°Ôº

Country Context

Georgia has made notable gains in income growth and poverty reduction over the past decade. As a result of sound macroeconomic management, GNI per capita (constant $2015) increased from $3,036 in 2010 to $5,679 in 2023. Poverty (measured by the $6.85 poverty line in 2017 PPP) declined from 70.6% in 2010 to a preliminary estimated 41% in 2023. The job market experienced a strong recovery, with unemployment falling from 20.6% percent in 2021 to a record low of 13.7% as of June 2024, supported by the fast growth rates in recent years. 

Nevertheless, structural challenges persist, notably weak productivity and limited high-quality job creation. About a third of workers remain engaged in low-productivity agriculture, and Georgia also has a large share of self-employed in other sectors. Access to finance remains a major obstacle for SMEs, while skills mismatches are reported to be an impediment for most firms. Due to its high degree of trade openness and dependence on tourism, Georgia is vulnerable to external shocks. In December 2023, Georgia was granted candidate status by the European Union (EU). However, the Georgian government's approval of legislation which requires NGOs and media organizations receiving more than 20% of their funding from abroad to register as ¡°organizations pursuing the interests of a foreign power¡± and to publicly disclose their annual financial reports, led to widespread protests in the country as well as criticism from EU member states, which was followed by the European Council¡¯s decision to halt Georgia¡¯s EU accession process. 

Last Updated: Oct 23, 2024

Strategy

The current active lending portfolio includes ten operations (nine IPFs and one PforR) with a total commitment of $1.2 billion. As of October 9, 2024, the undisbursed balance is $650 million (56%), with a YTD disbursement ratio of 8.6%. A major part of the current portfolio (44%), is committed to human capital development, 25% to infrastructure and digital development, and the remaining 31% to regional connectivity, energy, irrigation, agriculture and land, entrepreneurship and innovation, as well as support to micro-small-and medium enterprises. 

The Georgia CPF FY25-29 is under preparation and will be delivered by the end FY25. It proposes to focus on job creation, human capital development, and improving resilience, including activities to strengthen institutions and support the green transition. The program will support alignment of Georgia¡¯s policies with the EU Acquis and will leverage the full complement of resources outlined in the World Bank Group Evolution Roadmap. Delivering on the regional connectivity agenda will be central in the World Bank Group¡¯s engagement, with important contributions from IFC and MIGA to help mobilize private capital to support implementation of two flagship projects: the Middle Corridor and the Black Sea Submarine Cable. 

Each year, the World Bank delivers a robust knowledge program that includes advisory services and analytics (ASA) that examine a broad range of development challenges and provide recommendations to help mitigate these challenges. The active ASA program in Georgia includes the Country Climate and Development Report (CCDR), which will help Georgia prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation and resilience, while delivering on broader development goals. It is expected to be delivered in FY26. An active program of 11 trust funds totaling $5.8 million supports institutional capacity building, water, finance, energy, governance, digital, environment, and transport sectors.  

Last Updated: Oct 23, 2024

Recent Economic Developments

Georgia's economy grew by 9.1% in H1 2024, driven by strong public and private consumption. Domestic demand was bolstered by a 10.9% rise in real wages and 20.4% growth in credit. Services, especially education, transportation, and trade, led supply-side growth. Annual inflation dropped to 1% in August, and core inflation fell to 0.9%. The Central Bank has reduced its policy rate by 150 basis points to 8% since January 2024 reflecting eased inflation pressures. The banking sector remains strong, with a 4.2% return on assets and 24.4% return on equity by June 2024, while nonperforming loans stayed low at 1.6%. 

The current account deficit narrowed to 6% of GDP in H1 2024, supported by services and transfers despite a 16.9% rise in the trade deficit. Goods exports dropped 7.8% due to slowing commodity exports, while imports rose 2.4%. Money transfers decreased 30%, driven by a fall in inflows from Russia but was partially offset by inflows from the EU, US, and UAE. The Georgian lari depreciated 4.1% against the US dollar in the first 8 months of 2024. Reserves fell to $4.7 billion, or 3.3 months of imports. 

Fiscal performance was strong, with a deficit of 0.1 percent of projected GDP, a 21.4 percent increase in tax revenues, and a 27% rise in capital expenditure. Public debt was 40.4% of GDP by end-June 2024. The poverty rate decreased from 47.7% in 2022 to 43.6% in 2023, while unemployment fell to 13.7% by end-June, reflecting higher labor force participation.

Economic Outlook 

Growth is expected to reach 7.5% in 2024, driven by strong private consumption, before moderating to a 5 percent potential rate in the medium term, aiding poverty reduction. Inflation is forecast below the 3 percent target in 2024, aligning with the target by end-2025, as monetary policy supports growth prudently. The current account deficit is projected at 5.5% of GDP in 2024¨C25 due to slowing exports and remittances from Russia, remaining below the 10.3% level of 2021. Fiscal revenues should reach 25% of GDP in 2024, boosted by tax hikes on gambling, while expenditures are set to increase to 31% due to election-related spending, keeping the deficit at 3% per the fiscal rule. 

Risks to this outlook include post-election uncertainties, EU accession commitments, regional geopolitical tensions, and potential drops in remittances and tourism, which could hinder growth and elevate debt. Safeguarding macroeconomic stability will require central bank independence, sound monetary and fiscal policies, and exchange rate flexibility.

Last Updated: Oct 23, 2024