Georgian economy at a crossroads

Georgian economy at a crossroads

Georgy Kalatozishvili, Tbilisi. Exclusively to Vestnik Kavkaza

Experts believe that the sensational statement by Premier Ivanishvili on his withdrawal from politics was caused by the situation in the Georgian economy. According to state statistics, in May GDP growth was 0.7%, i.e. it basically stopped. When growth stops at some period of a year, it doesn’t mean a deep crisis. But the worst thing is a multi-month tendency.

Mikhail Saakashvili has already accused his rival of all economic problems. According to him, “economic growth is starting to fall for the first time since Shevardnadze’s era.” The president is cunning – “since Shevardnadze’s era” means that the economy of the country reduced under his predecessor and began to grow only due to the Rose Revolution and its leader. In fact, in 2003 when Shevardnadze was overthrown, GDP growth was 13%. Later, the economy has never had such growth. And the 13% growth was a result of the stable tendency of the whole period from 1995 to 2003.

At the same time, the state budget of 2003 was only $500 million, while in three years it grew to $4 billion. The situation is explained by the fact that, under stable economic growth, the administration of Shevardnadze didn’t employ the severe measures on taxation which Saakashvili’s team used since 2004.

However, it doesn’t explain all reasons for the economic slow-down (recession), which achieved its lowest point in 2013. There are two main factors. Firstly, when Ivanishvili’s team came to office, it stopped the majority of infrastructural projects (as part of the war against corruption). This touched on such an important project for the whole region as the construction of the Baku-Tbilisi-Kars railway, while such major projects provided not only jobs, but also economic growth.

The second reason is political instability in the country, diffidence of economic subjects in the future and fears of civil conflicts. This scares investors, and not only foreign, ones but also internal investors. Thousands of small businessmen who were ready to put a plaster on a house, take a credit in a bank or buy an old truck to transport watermelons from Eastern Georgia to Batumi, or build a family hotel in Svaneti, or open a store in Kutaisi, immediately stopped and didn’t want to take a risk. And economic growth is impossible without small and medium-sized business.

It would be wrong to say that the government of Ivanishvili is doing nothing to stop this dangerous tendency. The IMF recommended reducing the base interest rate from 4.25% to 4%. They counted on the only healthy economic sphere of Georgia – the banking system. The credit resource of banks of commerce is constantly rising. On the one hand, this excludes a possibility of crises, but on the other hand, it means that economic subjects don’t take credits for small and medium-scale projects.

It seems the only way out of the dangerous tendencies in the Georgian economy is stabilization of the political situation; demonstration of consolidation between those in power and elites; the end of internal fighting; development of clear game rules; and adoption of a clear program for the country’s development, including its foreign policy.


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