Increase in domestic tourism helps to soften blow to sector in Georgia

Increase in domestic tourism helps to soften blow to sector in Georgia

BAKU, Azerbaijan, November 10

By Tamilla Mammadova – Trend:

An increase in domestic tourism helped to somewhat soften the COVID-19 blow to the sector in Georgia, Trend reports via the European Bank for Reconstruction and Development (EBRD) report.

As reported, after growing by four consecutive years, money transfers fell by more than 40 percent year-on-year in April 2020, before returning to growth in June. Depreciation pressures prevailing throughout 2019 resumed in March 2020 on the back of looming uncertainty.

This added to the inflationary pressures and the consumer price level remained above the 3 percent level targeted by the National Bank of Georgia (NBG). However, on the back of significantly subdued demand, the NBG cautiously lowered the policy rate three consecutive times, from 9 to 8 percent, between March and August 2020.

The authorities secured substantial foreign financing to help fund the crisis response. An increase in government expenditures combined with weaker economic activity led to a sharp rise in the budget deficit, and the loss of tourism revenues has resulted in a widening of the current account deficit.

To help stabilize internal and external imbalances and provide an additional liquidity buffer, the authorities asked for augmentation of the Extended Fund Facility program with the IMF, thus securing finances of more than $400 million for 2020-2021. This is expected to more than cover the external and budget gaps in the near term.

"Economic recovery depends on the rebound of tourism. We project a GDP contraction of 5 percent in 2020 followed by a recovery of 3.5 percent in 2021. The speed of recovery and overall economic health in 2021 will be dictated by the developments in the hospitality sector and the inflow of foreign visitors, both of which are highly uncertain at present. The crisis emphasizes the need for advancing structural reforms that would attract stronger efficiency-enhancing foreign investments, and lead to productivity increases and economic diversification," the EBRD said.

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