Issue 3, 2015. June-July

   

GEORGIAN ECONOMY WILL GROW STRONGER IN 2016 - IMF, EBRD

Forecasts for the Georgian economy show the country will suffer a short dip in growth in 2015, but it is expected to start to recover in 2016.

IFI Expectations

The Georgian economy will grow in 2015 at a faster rate than neighbors Armenia and Azerbaijan, according to a May 19 report from the International Monetary Fund (IMF).

The IMF pegged Georgia's growth at 2 percent, which is down from 4.7 percent in 2014, but stronger than Armenia's (expected to have a negative growth rate of -1.0 percent) and Azerbaijan's, which is dropping from 2.8 percent growth last year to just 0.6 percent growth in 2015.

The Russian economy, according to the IMF report, will grow slightly in 2015 compared to 2014, from 0.2 percent last year to 0.5 percent this year. The European Bank for Reconstruction and Development (EBRD) published similar findings in May.While the EBRD cut expectations for Georgia's economic growth by nearly two percentage points to 2.5 percent, compared to their initial, January forecast of 4.2 percent, EBRD also predicted stronger growth in 2016.

Weaker Lari, Stronger Dollar

The Georgian lari has noticeably weakened over the past several months, echoing of similar trends across the region.

The IMF report said economies across the Caucasus and Central Asia are suffering due to a stronger dollar and a weaker ruble, as well a drop in oil prices.

"The twin shocks of the economic slowdown in Russia, a key trading partner, and lower oil prices are taking a toll on the region," Juha Kähkönen, Deputy Director of the IMF's Middle East and Central Asia Department told reporters in Almaty, Kazakhstan, according to the IMF website.

The lari's decline has been attributed to a number of factors, including a substantial drop in remittances (down over 21 percent this February), as well as lower foreign trade and investments.

Galt & Taggart Research forecast in its March 2015 report that "depending on the dynamics in tourism/FDI inflows and imports, we expect the US$/GEL to remain within the 2.10-2.30 range for the remainder of the year."

In an interview with the Georgian bpn.ge website, the (IMF) Resident Representative in Georgia, Azim Sadikov, praised how the National Bank of Georgia has handled the currency exchange situation, saying that allowing the lari to fluctuate compared to the U.S. dollar has been "best reaction to economic shocks."

He noted that "a more flexible lari" will help Georgia develop in the mid-term.

"The government may run the fiscal policy, while the National Bank of Georgia may tighten the monetary policy. However, this could lead to a recession and depress the economy. So there is a choice between temporarily strengthening the lari and economic growth," Sadikov was quoted as saying.

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