BAKU, Azerbaijan, December 5
By Tamilla Mammadova – Trend:
Economic growth in Georgia will be approximately 5-5.5 percent in the fourth quarter of 2019, and this is higher than the government and the National Bank of Georgia expected at the beginning of 2019, Giorgi Mzhavanadze, deputy head of Macroeconomic Policy Research Center at ISET Policy Institute told Trend.
According to him, from this point of view, the economic development of Georgia can be regarded as positive.
According to Mzhavanadze, investments in the private sector remained at the same level as in 2018; therefore, they did not have an impact on economic growth.
“On the other hand, public sector investments have increased significantly, and they are one of the main drivers of economic growth in Georgia in 2019; in this case, fiscal expansion is due to the growth of infrastructure projects,” he said.
According to him, the next driver of Georgia’s economic growth is export, which in 2019 grew by 10-15 percent compared to 2018.
“As a result of this, our trade balance is improving and the trade deficit is decreasing, which positively affects economic growth,” Mzhavanadze noted adding that this also includes the growth of money transfers in 2019.
“Two factors influenced the exchange rate. The first factor is the decrease in the flow of foreign direct investment, which fell to a record low in 2019 over the past five years. This is due to the fact that BP completed the project to expand the South Caucasus gas pipeline and their investments in Georgia stopped in 2019,” the deputy head of the center said.
According to Mzhavanadze, the second factor affecting the national currency of Georgia is a reduction in tourism income.
“In 2019, the number of tourists from Iran to Georgia halved, and the number of Russian tourists reduced due to the introduction of a ban on flights to Georgia by Russia. As a result, in the third quarter, the flow of foreign currencies from tourism decreased by 9 percent compared to the same period in 2018,” Mzhavanadze emphasized.
According to the deputy head, these factors negatively affected the lari exchange rate, which began to depreciate in June 2019 not only against the dollar, but also against the currencies of other trading partners of Georgia.
“All this led to inflation. Indeed, Georgia imports almost everything, and due to the depreciation of the currency, imports have risen in price and declined,” he noted.
Mzhavanadze said that in November, the annual inflation reached seven percent, while the target of the National Bank of Georgia was three percent. Consequently, inflation exceeded the level by four percent. In addition, in 2019 the excise tax on tobacco products was increased, which affected the increase in tobacco prices.
“Inflation in Georgia will continue in December and January, and by the summer of 2020 will gradually decline and make up three percent of the target,” the specialist noted.
According to Mzhavanadze, the depreciation of the currency also affects the national well-being of the people, because 60 percent of bank debts are in foreign currency. In turn, the National Bank of Georgia in these conditions increased the interest rate of the monetary policy to 8.5 percent, and before that it was 6.5 percent.
---
Follow the author on Twitter: @Mila61979356