Forecasts for Georgian economy
By Natalia Kochiashvili
Wednesday, April 15
The COVID-19 pandemic has caused radical changes all over the world. The economies are expected to shrink and field experts’ prognoses are not hopeful. Given the expectations of the mass crisis, it’s interesting what predictions for Georgian economy promise.
The World Bank regional director, Sebastian Molineus, has recently released the Spring 2020 Economic Update for the Europe and Central Asia region video address, where he talks about the impacts of the crisis on Georgian economy. Firstly, he praised the government’s efforts to battle the virus, yet noted that significant changes are expected for the economy in Georgia. Travel ban will affect tourism, while internal restraint mechanisms will reduce local demand, resulting in GDP fall.
According to the World Bank forecast, in 2020 GDP is expected to fall between -0.2% and 2% and the process of economic recovery will only begin by 2021. Molineus pointed out the importance of fiscally reasonable measures taken by the government and creation of capital buffers that allow for an active response to the crisis.
As for the 2020 Georgian fiscal deficit (a shortfall in a government's income compared with its spending) the forecast is for it to be around 5.2 % of the gross domestic product. In addition, the significance of quick and firm measures to protect affected families and companies was underlined. The statement was also hopeful for the economic recovery plan, currently under development. Molineus said the World Bank strongly supports Georgia during the current pandemic as it always has since the first days of independence, reiterating the official motto of Georgia - ‘Power is in Unity.’
In cooperation with the government, the World Bank has identified 3 different intervention projects to help the Georgian population: Supporting the healthcare system and promoting it through targeted social assistance, which has been most affected by the crisis; Ensuring a broad social protection system that will be able to support the population of Georgia in the coming months and; Actively supporting economic recovery, through assisting the private sector, which has been hit hard by the crisis.
The World Bank is allocating about $160 billion to support developing countries amid the Coronavirus pandemic over the next 15 months.
Galt & Taggart, investment banking and investment management services company has released its forecast in March, saying that Georgian economic growth may drop to between -6 % to 2.1 % this year due to the new coronavirus crisis, depending how the crisis plays out.
Research focused on 3 possible scenarios (optimistic, mild and pessimistic), according to which Georgian economic growth could differ based on the length of the crisis.
In the event the economic downturn extends from March to May and recovery begins in June, G&T predicts 2.1% growth, and gives the likelihood of this happening a 10% probability.
Should there be recovery in June-September and downturn yet again from October, G&T predicts that growth will equal -2.7%, with a probability of 50%.
Should the economic downturn continue past March, G&T says, with 40% probability, that growth will come out to -6% for the year.
Due to the crisis it expects foreign investments to decrease from $100 million to $400 million, while it discusses possible decline in remittances from $200 million to $300 million. Georgian exports may decrease from $200 million to $1 billion this year, while Georgian tourism could decrease from $1.2 billion to $2.8 billion.
Hotels, restaurants, shopping centers, entertainment and transport will likely have already seen an immediate negative effect, the financial sector, construction, real estate, trade, manufacturing and education will have a delayed negative effect, while healthcare, pharmacy, e-commerce, agriculture, communications and local tourism may experience positive trends.
According to the preliminary figures released by the National Statistics Office, Geostat, on April 13th, exports from Georgia decreased by 5.9% year-on-year to $ 778.2 million, and imports were down by 1.4% y/y to $ 2 billion in January-March, with the trade gap standing at $ 1.2 billion.
As for the total figures for the first quarter, in January-March 2020, Georgia’s foreign trade turnover decreased by 2.7%, compared to the same period last year, reaching $ 2.8 billion.
A detailed report on Geostat will be published on April 21, 2020, and it will be known which reduction of exports / re-exports has led to a complete reduction in exports.
International rating agency Fitch forecasts a recession and a 3.2% economic decline in Georgia in 2020. According to Fitch, the economic shock caused by COVID-19 and the fall in oil prices has made Georgia's economy more vulnerable, which has worsened the credit rating of the largest banks (TBC, Bank of Georgia, Liberty Bank) and replaced it with ‘negative’ instead of ‘stable.’
Prior to the change in credit rating, TBC Bank's rating was ‘BB Minus,’ and the rating was ‘stable,’ with an updated estimate that it is still "BB Minus", and the rating expectation is ‘negative;’ Liberty Bank's rating was ‘B +’ and its rating was ‘stable,’ but now the bank's credit rating is ‘negative.’ The Bank of Georgia had a similar assessment, with the updated rating of BB Minus and the credit rating expectation being ‘negative.’
Terrabank's rating remained ‘plus,’ but in his case, the credit rating was changed and ‘stable’ was replaced by ‘negative.’ A similar change has taken place with Basisbank. The expectations of ProCredit Bank rating remained unchanged and it is still ‘BB +’ stable.
According to Fitch's forecast, a 3.2% economic decline is expected in georgia.
"We expect slower economic activity (especially in the tourism sector), as well as a depreciation of the lari (the lari depreciated by 16% against the US dollar in March and 55% of bank loans are denominated in foreign currency), as well as declining real household incomes” - says the international rating agency.
It’s interesting that Standard and Poor's, a financial services company, has pushed Georgia's economic outlook from positive to stable. Standard and Poor's is expecting a recession in Georgia. However, according to his own forecast, the economy in Georgia will be restored in 2021-2022.
At the same time, S&P notes that the $ 2 billion economic aid package presented by the Georgian government will only partially alleviate the stress on the economy and households.
Given the developments mentioned above, chairman of the parliament’s finance and budget committee, Irakli Kovzanadze speaks of the first quarter of the 2020 state budget being completed, yet warns of the problems with the budget execution in the second quarter.
The revenue part of the budget for the first quarter of 2020 increased by GEL 271 million. Kovzanadze said that the plan to exceed the tax revenue alone amounted to GEL 160 million, but due to the shock caused by COVID-19, there has been a significant decrease in tax revenues since April. As for the expenses, GEL 235 million was spent from the state budget, as the state of emergency allows the government to cover these expenses.
Kovzanadze also noted, that both in terms of tax revenues and total revenues, the budget deficit will increase, which in the 2020 state budget is planned to be 2.5% of GDP.
