Georgia flag Georgia: Economic and Political Overview

The economic context of Georgia

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Georgia is a transition economy influenced by its past affiliation to the Soviet Union. Economic growth in recent years was boosted by rising domestic and external demand, resulting in higher consumption, exports, tourism and remittances. Covid-19 halted demand growth while weighing on the burgeoning tourism industry in 2020, with GDP contracting by an estimated 6.2%. However, GDP rebounded 7.7% in 2021, fuelled by private consumption (75% of GDP) and expatriate remittances (estimated at 11% of GDP in 2021). The IMF forecasts a growth of 5.8% this year, followed by 5.5% in 2023.

General government debt, which had already shown an upward trend in recent years as a result of public infrastructure spending, expanded further in 2020, as the government stepped up social and capital spending as part of a Covid-19 response package. In 2021, the government managed to reduce the deficit to 3.3% of GDP thanks to an increase in revenue prompted by enhanced taxation. The deficit is forecast at 0.4% of GDP in 2022 before the budget turns positive the following year (+0.6%). Albeit relatively low, public debt is heavily denominated in foreign currency (42%). After increasing by more than half following the outbreak of the Covid-19 crisis, the debt-to-GDP ratio returned to a downward trend in 2021 (54.2%) and is expected to remain relatively stable over the forecast horizon. An increase in oil and food prices, coupled with a weak lari, pushed average inflation at 9% in 2021. In response, the National Bank of Georgia (NBG) hiked its policy rate by 100 basis points to 10.5% by the end of the same year. A tighter monetary policy should help bring inflation closer to the 3% target by 2023. Given Georgia’s small and open economy, the lari exchange rate remains very volatile, often eroding household purchasing power.

The Georgian unemployment rate rose rapidly in 2021, reaching 20.6% of the active population (GeoStat), its highest level since 2017. Prior to Covid-19, poverty had been almost halved as a result of social policies and economic growth (19.5% of the population was living below the national poverty line in 2019, according to the latest figures from GeoStat). Inequalities remain high compared to other economies in the region, with low levels of education, and a rural population (40.5% of the total – World Bank).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 17.48e15.89e17.8519.6921.58
GDP (Constant Prices, Annual % Change) 5.0-6.27.75.85.5
GDP per Capita (USD) 4,694e4,275e4,8085,2985,804
General Government Balance (in % of GDP) -1.0-6.0e-3.3-0.40.6
General Government Gross Debt (in % of GDP) 40.460.054.253.652.1
Inflation Rate (%) 4.95.2e9.69.95.1
Unemployment Rate (% of the Labour Force) 17.6e18.50.00.00.0
Current Account (billions USD) -0.96-1.98e-1.78-1.50-1.34
Current Account (in % of GDP) -5.5-12.5-10.0-7.6-6.2

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Nearly 1.8 million Georgians, out of a population of 3.7 million, constitute the domestic labour force (World Bank) and the country possesses many natural resources on its territory. There are forests and woods, rivers and lakes, farmland, marble, minerals, manganese, iron, copper, coal, oil, clays, sand, as well as wildlife. The country has an agricultural tradition, which has helped develop Georgia's economy for years. However, the agricultural sector has been in decline since 1995. Agriculture now accounts for 7.4% of the GDP and employs 38.2% of the working population (World Bank). 98% of farmers are self-employed, and production is largely for self-consumption. More than 40% of Georgian territory is considered agricultural land, which also includes pastures and grasslands. The main agricultural products are cereals, technical plants, subtropical plants, fruit varieties, melons and gourds, tobacco and wine grapes, as well as rice, tea and cereals, tea and livestock. Georgia is also one of the oldest regions of wine producers and is rich in drinking water resources. The country has signed a Deep and Comprehensive Free Trade Area (CFTA) agreement with the EU, which implies that all Georgian agricultural products can be exported without duty to EU markets.

Following a decline during the break-up of the Soviet bloc, and again between 2004 and 2008, the industrial sector in Georgia has seen signs of modest recovery. The industry contributes 21.6% of the GDP and employs 14.3% of the working population (World Bank). The manufacturing sector accounts for 9.3% of GDP. The industrial sector includes mainly food processing and the manufacture of transportation equipment, electric motors, iron, steel, aircraft, chemicals and textiles. Mineral extraction concerns manganese (mainly in the Chiatura and Imeritia regions), copper, tungsten, marble and oil. Although Georgia has significant hydroelectric power generation capacity, it is heavily reliant on oil and gas imports. According to the latest data from Statistics Georgia, in the first nine months of 2021 total industry turnover stood at GEL 14.6 billion (compared to a full-year turnover of GEL 15.9 billion in 2020).

Services is the most dynamic subsector of the economy, accounting for 60.4% of Georgia's GDP and employing around 44.5% of the workforce (World Bank). The sector is boosted by the hotel, restaurant, transport and telecommunications industries. The tourism sector grew rapidly until Covid-19 (9.4 million visitors in 2019, 1.7 million in 2020 according to Georgian National Tourism Administration), and has become one of the government's priorities with the development of coastal infrastructures in the Adjara region and Svaneti ski resorts. Nevertheless, in 2021 tourism revenue accounted for only 38% of 2019’s revenue level (USD 1.24 billion), whereas the number of visitors went down by 80% (Georgia Tourism Administration).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 38.2 14.3 47.6
Value Added (in % of GDP) 7.4 21.6 58.6
Value Added (Annual % Change) 3.6 -2.8 -7.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
77,2/100
World Rank:
12
Regional Rank:
7

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: July 2022

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