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WB's economic review makes forecast on Georgia's economy for 2021

Business Materials 31 March 2021 13:14 (UTC +04:00)
WB's economic review makes forecast on Georgia's economy for 2021

BAKU, Azerbaijan, March 31

Tamilla Mammadova – Trend:

Georgia’s economy is projected to recover in 2021, growing by 4 percent, Trend reports citing the ‘Economic Review of Europe and Central Asia’ report of the World Bank (WB).

"The recovery will be supported by fiscal stimulus in the form of accelerated capital spending, tax deferrals, accelerated VAT refunds, and targeted support for the most affected businesses, as well as higher social spending. The fiscal deficit is expected to remain elevated at around 7 percent of GDP in 2021," said the report.

WB said the external deficit is expected to narrow in 2021 compared to 2020.

"Still, it will remain high at about 11 percent of GDP as the services sector recovers gradually, and import flows pick up in line with firming economic activity," said the bank's review.

"Recovering FDI and sustained support from international financial institutions are expected to cover Georgia’s external financing needs and help maintain a comfortable reserves cushion," the report said.

The report said the pace of recovery beyond 2021 will be contingent on COVID-19 vaccine rollout and the restoration of international trade and investment. Under a baseline scenario in which no third wave of infections materializes and a significant share of the population is vaccinated by 2022, economic growth could recover to 5 percent in 2022 and 2023.

"The baseline scenario projects that the fiscal deficit will narrow to reach the levels prescribed by the fiscal rule (3 percent of GDP) by 2023. The pandemic’s impact on poverty and inequality will depend on the severity and duration of the crisis and the policy response. Under the baseline scenario, the poverty rate is expected to decline gradually, returning to pre-crisis levels by 2023. Delayed vaccinations, further restrictions and prolonged political tensions represent the key downside risks to this outlook," the bank said.

"Either scenario could lead to a slower recovery in 2021 and a more modest recovery in the medium term, with output not returning to pre-COVID levels until 2024. A delayed recovery could also pose risks to macro-financial stability, given Georgia’s high rate of dollarization, unhedged balance sheets, and high gross external debt," the report said.

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