Issue 4, 2016. August-September



On July 1st, the World Bank announced that Georgia had become an upper middle-income country, a status determined by a country's gross national income (GNI) per capita. Rather than through economic growth alone, however, this change had another source - the 2014 population census. How did the census change Georgia's income classification, and why does it matter?

Dustin Gilbreath

Georgia's newly minted upper-middle income status is at base about statistics, and specifically how the statistics that determine income status are calculated: population and Gross National Income. Given that Georgia's official population estimate shrank to 3.7 million people from over 4 million following the most recent census conducted in 2014, the per capita GNI number has been increasing at a faster rate than previously thought. This means the Georgian census resulted in Georgia becomeing an upper middle income county. This article will address why this happened and its possible consequences for Georgia. While the change could have some benefits for Georgia in terms of foreign investment and Euro-Atlantic integration, it might also have a negative impact on foreign aid.

To Start, the 2002 Census Was Way Off

In 2002, the census found that there were 4.37 million Georgians in the country. However, this number was and is widely considered to be suspect. According to a 2014 UNPF report (and notably, Geostat employees in 2002), the main problem with the 2002 census was its method of counting the migrant population. Specifically, the 2002 population count included 114,000 Georgian emigrants who may have permanently rather than temporarily settled abroad. Since 2002, inaccurate accounting of births and deaths made the situation worse.

Between censuses, governments update population counts based on birth and death registrations. Since many births in Georgia happened outside of hospitals (and to a certain extent still do), they were not always registered. Incomplete death registrations also contributed to mis-estimation of the population between censuses.

Income Group Classifications

The second important part of this story is understanding how countries are classified into income groups. The World Bank classifies countries by GNI per capita. Specific definitions change year by year, but for 2016-17, countries with a per capita GNI of less than $1,025 are considered low-income countries. Countries with a GNI per capita between $1,026 and $4,035 are classified as lower middle-income countries. Countries below $12,475 but above $4,035 GNI per capita are considered upper middle-income countries, and finally, if a country is above the $12,475 mark, it qualifies as a high-income country.

Even though Georgia's status only formally moved to upper middle-income status, on July 1st, 2016, the country actually became an upper middle-income country when GNI per capita moved from $3,920 in 2012 to $4,240 in 2013. Notably, in 2014, Georgia's GNI was $4,490 per capita, well above the $4,035 threshold for upper middle-income status according to World Bank data. As the chart on page 10 shows, had the census not taken place, however, Georgia would still not qualify as an upper middle-income country.

The chart is based on Giorgi Tsuladze's estimates, Geostat's pre-2014 census data, the 2014 census, and World Bank GNI data.

Why Does This Matter?

Well, there is good and bad news for Georgia.

To start with the bad, foreign aid is sometimes distributed in part based on a country's economic status, and Georgia receives a substantial amount of foreign aid - over half a billion dollars in 2014, according to World Bank data. There are many other important factors at play when aid decisions are made, however, so Georgia is unlikely to experience a dramatic cut in aid from the income group status change. Still, Georgia may expect lower levels of aid in the coming years.

The good news is there are a number of potential benefits from the status change. First, foreign private capital flows may increase, as the country could be perceived as having a more enticing investment environment, with a relatively richer domestic market.

Second, the downward population adjustment means that GNI per capita has been growing at slightly under one percent higher than previously thought since 2002.

While 1% may sound measly, when it comes to an economy as a whole over a number of years, this percentage point adds up, and means that average wealth has likely been increasing faster than previously thought. Clearly, however, it is important to note that income inequality persists in Georgia (and GNI per capita says little if anything about the distribution of incomes).

Third, the upward adjustment could aid Georgia's Euro-Atlantic integration prospects. Generally speaking, a key barrier to prospective EU membership is low income levels. As Georgia's income level gradually increases, it will make Georgia a more attractive partner country.

In the grand scheme of things, the adjustment is good as well. While not necessarily good for Georgia, countries in more dire straits may receive more aid that would have been aimed at Georgia. Better decisions about what kind of aid the country receives may also result from the more accurate data and income categorization.

So, Georgia is an upper middle-income country, and this is how the census made it that way. While the label is just that—a label—and there hasn't been an overnight lifting of Georgia out of poverty, the change still can be seen as a sign that the many years of slow progress toward economic development Georgia has experienced are leading somewhere.

Dustin Gilbreath is a Policy Analyst at CRRC-Georgia. The views expressed in this article are the author's alone and do not necessarily represent the views of CRRC-Georgia.

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