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Brief Georgian Economy

Brief Georgian Economy

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Published by nanatsertsvadze

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Published by: nanatsertsvadze on Jun 15, 2012
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4.05.16.47.810.212.810.811.614.415.917.90.05.010.015.020.0
2003200420052006200720082009201020112012P2013F
Nominal GDP (US$bln)
11.1%5.9%9.6%9.4%12.3%2.3%-3.8%6.3%7.0%5.0%6.5%
-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%
2003200420052006200720082009201020112012P2013F
Real GDP growth, y-o-y (%)
Georgia overview
June 2012About Georgia
Area
 
 –
69 700 sq. m.
Population
 
 –
4, 497, 600
Capital
 
 –
Tbilisi (population 1, 172, 700)
Boarders
: Southeast
 –
Azerbaijan, Southwest
 –
Turkey, North
 –
Russia, South
 –
Armenia
Ethnic Groups
: Georgians
 –
83.8%, Azeris - 6.5%, Armenians
 –
5.7%, Russians
 –
1.5%
Currency
 –
Georgian Lari (GEL); 1 USD= approximately 1.63 GEL (according to the data of 11.06.2012)
Climate
- The climate is dry and continental in eastern Georgia with hot summers and mild winters. The climate inwestern Georgia and on the Black Sea coast is warm and semitropical.
Economic Structure and Trends
 
In 2003-
2011, Georgia’s gross national disposable
income increased nearly 3 times, and so did its GDPper capita. Broad-based growth dynamics wassustained with average annual real growth rate of around 7%.
 
Georgia’s projected 2012 level of the budget
revenues - kept intentionally at around 30% of theGDP - is now very close to the level of GDP back in2003.
 
Number of taxes has been condensed drasticallyfrom 21 in 2004 to only 6 flat taxes today, withaccompanying reduction of nearly all tax rates.
 
Infrastructure spending increased almost 11 times.Georgia developed multi-modal maritime-air-landnetworks of cross-border and in-countryconnectivity to compound the virtues of the
country’s geography. Public
wealth spending
 
onroad, railway, energy, and municipal infrastructurewent up dramatically, persistently amounting to upto 25-30 percent of annual expenditures.
 
Current expenditure has been sufficientlycontained, fostering a promising fiscal and publicdebt performance. 2011 net government debt to
GDP ratio stood at only around 23%. Georgia’s
 
 Eurobond trades well above par in internationalcapital markets.
 
Significant flexibility of the labor market waswarranted to provide comfort to private sectorparticipants.
 
Stability in the financial sector was ensured. Nosingle bank has gone under despite globalchallenges. Banks are privately owned, wellcapitalized, with strong balance sheets, prudentloan book expansion patterns, high liquidity ratiosand significant growth prospects.
 
Georgia remains firmly committed to the tradeopenness, with free trade regime with almost allneighbors, including supreme of the CIS countries,South Caucasus, Central Asia and Turkey. Georgiawill soon have deep and complete free tradeagreement with the European Union and isexploring free trade deal with the United States of America.
Fiscal Framework
The Government
s program of fiscal consolidation has advanced ahead of agenda with the deficit for 2012declining to 3.6% of GDP. Improved compliance on the back of simplified procedures and policies has lifted taxreceipts significantly. Government spending is more heavily weighted towards capital expenditure than amongpeers, with future positive multiplier effects. The Government is exceptionally prudent and conservative inmanaging recurrent and social costs, with growth-enhancing capital expenditures being the only contributor to thedeficit formation. Fiscal consolidation thus does not pose any political or social challenges. The Governmentmaintains strong relations with international development partners (both bilateral and multilateral), focusing inthe first place on infrastructure development priorities. This provides low-cost fiscal stimulus to the economy andallows implementing competitiveness-enhancing capital expenditures measures. Retiring government debt stockand low and largely fixed interest rates help to reduce external vulnerabilities. Driven by solid essentials, Georgia
sEurobonds have had a great secondary market performance, despite challenging global context. Strong and
01000200030004000500060007000
2003200420052006200720082009201020112012P2013F
GDP Per Capita $US (PPP)
2011 outcomes:

Tax collection increased 26% y-o-y

VAT turnover increased 26% y-o-y
Commercial bank lending to the real sectorincreased 24% y-o-y

Trade turnover increased 36% y-o-y
Manufacturing, 17.3%Trade, 17.3%PublicAdministration, 11.7%Transport&Communications, 10.6%Agriculture,9.3%Healthcare& SocialAssistance,6.1%Construction,6.2%Education,4.5%Othersectors,16.9%
Nominal GDP Structure 2011
 
 unequivocal political consensus around the need to sustain fiscal stability and preserve adequate fiscal spaceprecludes emergence of any policy drift in the area of fiscal programming or policy, with the Government fully incontrol of the spending dynamics.
 
Public debt stock peakedin 2010 at a comfortable 42%of GDP and is expected todecline over 2010-2013 (evenunder the most conservativescenarios the downwardtrend in this ratio shall bematerialized).
 
The public debt ratiodecreased by 5.7 percentagepoints to 36.7% of GDP in2011.
 
Public debt stock isprevailingly on concessionalterms - weighted averageinterest rate on the publicexternal debt stock is 2%only. Interest payments torevenues ratio is very lowrelative to peers. Refinancingrisk is inexistent.
External Sector
The current account deficit has narrowed significantly and is expected to continue to tighten steadily to 6.7% of GDP by 2017 (IMF Precautionary Arrangement, April 2012)
 
The current account deficit is already significantly narrower than that of some peers rated in the BBcategoryOver 2009-11 FDI has covered an average of about 60% of the current account deficit; this is expected to risefurther in 2012
 
FDI stimulates imports of goods, if FDI fell so would the current account deficit
 
More generally, declining reliance on foreign capital is expected on the back of increased domestic savings
as Georgia’s strong growth promotes continued wealth accumulation
 Strong and rising FDI bodes well for future productive capacity gains and exports and therefore for the structuralreduction in the current account deficit over time
 
Key industries benefiting from FDI include tourism, energy and manufacturing. The prospects forelectricity exports are strong
net electricity exports have risen 12-fold since 2007 and the goal is to
0.0%20.0%40.0%60.0%80.0%100.0%20032005200720092011 
Capital vs. Current Expenditures (high ratio of capex)
Current ExpendituresCapital Expenditures
SocialProtection,20.9%EconomicAffairs,13.7%General PublicServices, 11.8%Public Order andSecurity, 11.5%Defence, 8.8%Education, 8.4%Health Care, 5.4%Other, 19.5%
Composition of the 2012 State Budget Outlays

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