Current account deficit to widen in Georgia - IMF

Business Materials 30 December 2020 21:24 (UTC +04:00)
Current account deficit to widen in Georgia - IMF

BAKU, Azerbaijan, Dec.30

By Tamilla Mammadova – Trend:

İn Georgia growth in 2020 is projected to contract by 5.1 percent driven by falling external demand, notably for tourism-related activities, and private investment, mainly during the lockdown but also due to rising geopolitical tensions after the reopening– although recent developments suggest tensions could fade, Trend reports via the International Monetary Fund's (IMF's) report.

"Inflation is projected at 3.5 percent at end-2020 as the increase in food prices during the lockdown has been fully compensated by the decline in inflation after the reopening. The output gap is projected to widen slightly to –2.7 percent as potential GDP is expected to decline," said the report.

Assuming the pandemic fades gradually, staff projects growth to rebound to 4.3 percent in 2021, supported by strengthening external demand and an assumed gradual re-opening of activity that slowly leads to improving domestic demand, said the IMF.

Medium-term growth is expected to reach 5¼ percent by 2025, supported by infrastructure spending and structural reforms. While output is projected to exceed pre-crisis levels by 2022, staff estimates real GDP by 2025 to be about 8 percent below pre-pandemic projections, in line with the average in peer countries.

The widening of the output gap and limited depreciation pressures (in nominal effective terms) are projected to pull inflation below 3 percent in 1H2021 before inflation starts increasing and reaches the target by end-2021 as demand recovers. Gross external debt is projected to decline steadily and reach 90 percent of GDP by 2025, although it would remain vulnerable to external shocks, especially to lari depreciation.

The current account deficit is expected to widen from 5.4 percent of GDP in 2019 to 9.8 percent of GDP in 2020, mostly driven by the sudden stop in tourism. Imports are expected to decline, driven by lower commodity prices and weaker domestic demand. The financial account is projected to deteriorate by 3.2 percent of GDP to 2.6 percent of GDP in 2020, as lower FDI and portfolio investment are expected to be partially mitigated by additional IFI loans.

The Balance of Payments (BOP) gap in 2021 is partially driven by a more protracted recovery in tourism, with tourism revenues projected at only 25 percent of the 2019 level and the current account deficit projected to be 8.5 percent of GDP. BOP gaps are expected to be closed with IMF and donor financing.


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