FACULTY OF BUSINESS AND MANAGEMENT

DIPLOMA IN INVESTMENT ANALYSIS

SUBJECT:

MACROECONOMIC (ECO211)

TOPIC:

INFLATION AND UNEMPLOYMENT PROBLEMS IN GEORGIA

PREPARED BY:

NO. NAME STUDENT ID

1. IFFAH SYAIRAH BINTI MOHD SHABARUDIN 2020488814
2. MUHAMMAD AKMAL BIN ABDUL RAHIM 2020845356
3. HARITH DANIEL BIN ABDUL AZIZ 2020855398
4. RAIHAH BINTI ZULKHAIRI 2020498238

PREPARED FOR:

PUAN NUR AZWANI BINTI MOHAMAD AZMIN

SUBMISSION DATE:

29 JANUARY 2022

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Table of Content

No. Topic Pages

1.0 Introduction
Population 3-4
1.1 National Income/GDP 4-5
1.3 Main Sector Contributors 5-6
2.0 Macroeconomics problem
2.1 Problem of Inflation 7
2.2 Problem of Unemployment 8
3.0 Measures to overcome the macroeconomics problem
3.1 Fiscal Policies 9
3.2 Monetary Policies 10
4.0 Conclusion 11

5.0 References 12

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1.0 INTRODUCTION

1.1 POPULATION

Georgia is a state in the south-eastern United States with landscape that includes ocean
beach, agriculture, and mountains. Atlanta, Georgia's capital city, is home to the Georgia
Aquarium and the Martin Luther King Jr. National Historic Site, both of which are dedicated
to the African American leader's life and times. Savannah is well-known for its 18th and
19th-century architecture and green public areas. Georgia, Georgian Sakartvelo,
Transcaucasia country located at the eastern end of the Black Sea on the southern slopes of
the Greater Caucasus Mountains' main peak. It is bordered by Russia on the north and
northeast, Azerbaijan on the east and southeast, Armenia and Turkey on the south, and the
Black Sea on the west. Georgia is divided into three ethnic enclaves: Abkhazia (main city
Sokhumi) in the northwest, Ajaria (major city Batumi) in the southwest, and South Ossetia
(principal city Sokhumi) in the north (principal city Tskhinvali). Tbilisi is Georgia's capital
(Tiflis).

Population growth is the change in the number of people over time, which can be calculated
as the change in the number of individuals in a population through a measure over a period
of time. The following is the total population of Georgia.

YEAR TOTAL POPULATION

2006 3880347.0
2007 3860158.0
2008 3848449.0
2009 3814419.0
2010 3786695.0
2011 3756441.0
2012 3728874.0
2013 3717668.0
2014 3719414.0
2015 3725276.0
2016 3727505.0
2017 3728004.0
2018 3726549.0
2019 3720161.0
2020 3714000.0

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Changes in Georgia’s population negatively reflect demographic developments, which tend
to worsen and are one of the country’s real problems. The factors that affect the population
are the changes made and the definition of subsequent development trends. It is found that
this change in the population in Georgia is mainly due to political and socio-economic
factors, which have a relatively different journey according to time and space. Unstable
political conditions and high unemployment are factors contributing to the workforce in
Georgia has been reduced and most have migrated to foreign countries where the economy
is more stable. In addition, the population growth rate in the last 15 years has decreased
from 2006 to 2013. The population growth rate remained in 2014 at 0%, however, back
decreased 0.2% in 2019. Georgia's population has been falling for many years, while its
current growth rate is believed to be at 0.6 percent per year. Unless something changes,
government officials and demographers believe Georgia's population will be cut in half in 40
years.

1.2 NATIONAL INCOME

Economic growth is important for a country in order to increase the living standards of its
citizens and ensure the country's stability. Economic growth can also be used as a
measurement to analyse a country's economic development status. In the current economic
scenario, economic growth cannot avoid being affected by an upturn or a downturn.
Sometimes economic growth increases to the point where prices rise, while other times it is
slowly and decreases to a level lower than previously. To calculate a country's rate of
economic growth, the real national income, also known as Gross Domestic Product (GDP) or
Gross National Product (GNP), must be considered (GNP). The national income and its
components are calculated at a fixed price, i.e., the price of products in the selected base
year. Economic growth is critical for increasing income and employment possibilities for the
people. The total amount of a person's final goods and services generated in a year is
referred to as national income. Income is the same as national production. The total sum of
revenue received by factors of production of productive items is referred to as national
income. Rent, net interest, salary, company profit, and private enterprise income are
examples of income factors. The importance of analysing national income involves
measuring a country's economic growth, resolving economic difficulties, measuring people's
living standards, and comparing living standards between countries. In these 15 years there
is a tendency for GNI growth in Georgia.

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 2012 2013 2014 2015 2016 2017 2018 2019 2020
GNI growth (annual %) 8.2 2.8 5.0 2.0 0.4 4.4 5.9 4.3 -7.0
GNI per capita growth 9.0 3.1 4.9 1.8 0.4 4.4 6.0 4.5 -6.9
(annual %)
GNI per capita Atlas 4150 4530 4740 4410 4080 4040 4460 4690 4270
method (current US $)
GNI per capita PPP 9720 10420 11420 11820 12260 12920 14030 14930 14070
(current international $)

Looking at the entire picture above, there has been a decrease from 2012 to 2018, then an
increase in 2019 and a decrease in 2020. This is due to an increase in long-term liabilities
and fixed costs, which outweighs economic growth and national revenue. Despite having
achieved great achievement in the political, economic, and social environments, the
population's level of living and quality of life remains quite low. Satisfaction with public needs
falls considerably behind economic growth. Georgia is currently dealing with a number of
economic issues that must be addressed quickly or the country's macroeconomic stability
will be negatively affected.

1.3 MAIN SECTOR CONTRIBUTIONS IN GEORGIA

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 Basically, there are 3 kind of sector contributions that are helping the economy of
Georgia. Firstly, we can see that the agriculture sector managed to reach from 8.45% to 7.37
at the end of 2020 for the GDP of Georgia. Plus, for the industry sector they managed to
reach starting from 16.85% to 21.63% which is pretty amusing for Georgia. Moreover, the
services sector actually contributes a lot starting from 63.08% in 2010 and ended at 58.57%
in 2020.

For example, one of the companies that managed to grow up the agriculture sector is
AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and
related replacement parts globally. For the next, the top company that helped the industry
sector is the Gulfstream Aerospace Corporation who are experts on manufacturing aircrafts.
For the last instance, one of the top companies that rose up the services sector is the Variux
that helped a liturgical goods online retail store to improve their e-commerce presence. They
developed a renewed Magento website for them. They also taught them to add, delete, and
edit content in-house.

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2.0 ANALYSIS CURRENT MACROECONOMICS PROBLEM

2.1 Problem of Inflation in Georgia

Inflation as measured by the consumer price index reflects the annual percentage change in
the cost to the average consumer of acquiring a basket of goods and services that may be
fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally
used.In 2020, the average inflation rate in Georgia amounted to about 5.2 percent compared
to the previous year.

Georgia’s economy expanded rapidly during the pre-COVID period, growing at a robust
annual average rate of 5 percent from 2005 to 2019. Rapid growth contributed to the halving
of the national poverty rate between 2007 and 2019. Responsible macro policies,
intensifying global integration, sound public investments, an attractive business environment,
improving governance, and rising public spending underpinned the progress.

The country has a shared consensus on national priorities, including participation in Euro-
Atlantic integration, more efficient government, stronger growth, and a better functioning
welfare state. This paved the way for the signing of an Association Agreement with the

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European Union (EU) in 2016, including a Deep and Comprehensive Free Trade Area
preferential trade regime. Free trade agreements with major trade partners, such as the EU
and China, position Georgia well to attract foreign direct investment (FDI).

However, years of sustained growth had a limited impact on quality job creation, and many
Georgians continue to rely on low-productivity employment, especially in agriculture and the
informal sector. Export volumes have increased but exports remain unsophisticated, and
firms face low growth and survival rates. These outcomes indicate an incomplete structural
transformation and an economic divide among regions. Education outcomes remain poor,
and workers are generally not equipped with the skills demanded by employers. The tense
political environment is also a concern for the private sector.

The COVID-19 pandemic reversed some of Georgia’s gains. After the country achieved
early success in containing the spread of the disease, infections surged in late 2020, and by
the summer of 2021 Georgia had one of the world’s highest infection rates per capita.
Economic output fell, contracting by 6.2 percent in 2020, as mobility restrictions were
implemented and tourist arrivals collapsed. Despite a robust fiscal response, estimated at
7.5 percent of GDP, close to the regional average for Europe and Central Asia, the poverty
rate at the international upper-middle-income poverty line ($5.50 per capita per day) rose
from 42 percent in 2019 to an estimated 46.6 percent in 2020.

2.2 Problem of unemployment

Unemployment remains one of the biggest challenges in the country, according to UNDP.
The unemployment rate has increased to 12 percent, and 68 percent of the population
consider themselves unemployed. ... Labour market status is another big reason for a large
number of Georgia's population living in poverty

The causes of unemployment in high-income countries of the world can be categorized in

two ways: either cyclical unemployment caused by the economy being in a recession, or the
natural rate of unemployment caused by factors in labour markets, such as government
regulations regarding hiring and starting businesses.

Georgia's unemployment rate was one and four-tenths percent lower than the national
unemployment rate of 4.2 percent. ... In comparing November 2021 figures to pre-pandemic
March 2020 figures, the labour force remains down 32,000, the number of employed is up
10,000, and the number of unemployed is down 42,000

Georgia's number of jobs was up 24,200 over the month and up 198,200 over the year to
4,648,000, making up for over 97% of the jobs lost during the pandemic. Job numbers were
at an all-time high in the Trade and Transportation, Retail Trade and Transportation and

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Warehousing, Professional and Business Services, and in Professional, Scientific, and
Technical Services and Administrative and Support Services sectors.

Commissioner Butler also announced today a new all-time number of employed Georgians
up 14,026 to 5,041,987 in December. The labour force was up 3,701 to 5,177,893, and the
number of unemployed was down 10,325 to 135,906, the lowest figure since January 1980
when the labour force was at 2.46 million.

There are over 200,000 jobs listed online at EmployGeorgia.com, resulting in a minimum of
over 305,000 unfilled positions. Employers with over a thousand job postings included
United Health Group, 2,200, Home Depot, 1,700, Amazon 1,500, Well star Health System,
1,400, Walmart, 1,200, and Marriott International, 1,200.

Industries with over ten thousand job postings included Health Care, 30,000, Retail Trade,
17,000, Accommodation and Food Services, 15,000, Finance and Insurance, 13,000,
Manufacturing, 11,000, and Professional, Scientific & Technical Services, 10,000.

Market salaries for the jobs listed on Employ Georgia range from $23,000 to $105,000,
showing a median salary of $44,000.

Initial claims were down 272 (2%) from November to 16,922 in December, marking the
lowest monthly total since June 1974. Initial claims were down 107,363 (86%) over the year.

3.0 Measures to overcome the macroeconomics problem.

3.1 Fiscal Policies.

i) Georgia government plans to develop the domestic capital market have

been delayed because of the pandemic. They will refinance the
Eurobond maturing in April 2021 to preserve comfortable buffers for
downside risks and instead delay our plans to expand domestic
issuance. In the future, they plan to gradually increase the size of
domestic benchmark bonds, to encourage foreign investor
participation. This approach would help the country to reduce foreign
exchange (FX) risks over the medium term.
ii) Georgia governments are committed to medium-term fiscal
sustainability in compliance with their fiscal rule. They will bring the
fiscal deficit under 3 percent of GDP and public debt under 60 percent
of GDP by 2023, as prescribed by the Liberty Act. The recovery in

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 revenues, as economic growth resumes and the unwinding of
temporary support measures would help reduce the budget deficit,
while commitments towards higher education and infrastructure
spending would require creating additional fiscal space within the
current spending envelope and mobilizing revenues.
iii) Despite the COVID-19 pandemic, Georgia government sustained
capital spending in 2020 and continue significant public investment in
2021. Capital spending reached 8.6 percent of GDP in 2020,
supporting major national infrastructure projects and elevated regional
investment, exceeding the amended budget by GEL708 million.
Investment execution was largely unaffected by the COVID-19
pandemic and local governments used the opportunity to reallocate
jobs, primarily toward road infrastructure projects. Capital spending
(including gross budget lending) will remain elevated at 8.4 percent of
GDP in 2021 to support the economic recovery and give continuity to
ongoing public infrastructure projects of strategic national importance.

3.2 Monetary Policies.

i) Georgia governments are committed to their inflation targeting (IT)

framework to maintain price stability. Inflation in December 2020 fell
within the inner band of the Inflation Consultation Clause. Their
monetary policy decisions will continue to depend on the inflation
outlook. They closely monitor inflation expectations and developments
as they would have to balance the need to control inflation
expectations, which remain elevated, with the need to support demand
in the aftermath of the COVID-19 pandemic. Continued adverse
external developments may require further increases in the policy rate
to preserve price stability.
ii) Despite challenging market conditions, Georgia government did not
draw on their reserves as much as originally expected. The end-
December nominal interest rate (NIR) reached $1,335 million,

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 significantly above the adjusted target (adjusted downwards to $899
million due to lower external disbursements). However, the situation
remains volatile, and they are committed to intervene if needed to
avoid disorderly market conditions.
iii) Over the medium term, Georgia government remain committed to
maintaining adequate reserves, design a clear FX intervention strategy,
and strengthen NBG’s communication. As the economy recovers from
the shock and market conditions allow, they will start rebuilding
external buffers. Their intervention strategy will remain guided by
reserve adequacy and price stability goals with reserve accumulation
objectives suspended at times when markets become disorderly. To
improve transparency of their FX interventions, they will finalize their
intervention strategy by May 2021.

4.0 CONCLUSION

As a conclusion, Georgia as one of the world's advanced IMF economies and wealthiest
liberal democracies among countries all over the world and is listed as member of Group of
countries. After a thorough research, Georgia has confronted macroeconomic problems likes
inflation and unemployment which is very critical due to Pandemic Covid-19.

Inflation rates in Georgia climb to the highest level in 15 years which is 5.43% and caused
the cost of living goes up, as confirmed by the World Bank Data. It also caused supply
disruptions and change in administered prices.

Next, unemployment issue in Georgia. Cyclical unemployment has occurred in Georgia

which is employment that exist because there is a recessionary gap forcing business to lay
off large number of workers to cut costs. The unemployment rate has increased to 12
percent, and 68 percent of the population consider themselves unemployed.

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After make some research, there are many initiatives that Georgia did to overcome this
problem. Monetary policy and fiscal policy be the most important tool for maintaining low
inflation. In Georgia, monetary policy is set by the Monetary Policy Committee (MPC) of the
National Bank of Georgia (NBG) to execute contractionary monetary policy which contains,
open market operations and to reduce the money supply. Tools from fiscal policy that help
solve inflation such as decrease in government expenses, increases in taxes, and
expansionary fiscal policy.

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5.0 REFERENCES

 https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?
end=2020&locations=GE&start=2018
 https://en.wikipedia.org/wiki/Economy_of_Georgia_(country)
 https://www.gfb.org/education-and-outreach/about-ga-agriculture.cms
 https://www.imf.org/en/News/Articles/2021/07/16/mcs071921-georgia-staff-
concluding-statement-of-the-2021-article-iv-mission
 https://www.imf.org/en/Publications/CR/Issues/2021/04/16/Georgia-Eighth-Review-
Under-the-Extended-Fund-Facility-Arrangement-Press-Release-and-Staff-50358

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