Economy of Georgia

Economy - overview: Georgia's economy has traditionally revolved around Black Sea tourism; cultivation of citrus fruits, tea, and grapes; mining of manganese and copper; and output of a small industrial sector producing wine, metals, machinery, chemicals, and textiles. The country imports the bulk of its energy needs, including natural gas and oil products. Its only sizable internal energy resource is hydropower. Despite the severe damage the economy has suffered due to civil strife, Georgia, with the help of the IMF and World Bank, made substantial economic gains since 1995, increasing GDP growth and slashing inflation. The Georgian economy continues to experience large budget deficits due to a failure to collect tax revenues. Georgia also still suffers from energy shortages; it privatized the distribution network in 1998, and deliveries are steadily improving. Georgia is pinning its hopes for long-term recovery on the development of an international transportation corridor through the key Black Sea ports of P'ot'i and Batumi. The growing trade deficit, continuing problems with tax evasion[?] and corruption, and political uncertainties cloud the short-term economic picture. However, revived investment could spur higher economic growth in 2000, perhaps up to 6%.

Economy -- in greater depth:
Georgia's economic recovery has been hampered by the separatist disputes in Abkhazia and South Ossetia[?], a persistently weak economic infrastructure, resistance to reform on the part of some corrupt and reactionary factions, and the Russian and Asian economic crises. Under President Shevardnadze[?]'s leadership, the government has nonetheless guided the economy to impressive gains: slashing inflation, meeting most IMF targets through its July 1998 review, and qualifying for economic structural adjustment facility credit status, introducing a stable national currency (the lari[?]), introducing free market prices of bread products, preparing for the second stage of accession to the World Trade Organization (the first stage has already been met), signing agreements that allow for development of a pipeline to transport Caspian oil across Georgia to the Black Sea, and passing laws on commercial banking, land, and tax reform. However, as a result of the fallout from the Russian and Asian economic crises, Georgia has been unable to meet IMF conditions recently.

Georgia's deficit fell from the 1996 rate of 6.2% to 3.6% in 1997. The Government expects to continue reducing the country's deficit to 3% in 1998. President Shevardnadze recently announced that tax revenues have risen dramatically, and recent tax reform, encouraged by the IMF, should lead to further increases. However, Georgia needs to implement its tax legislation and take concrete steps to meet IMF programs. Although total revenue increased from 1996 to 1997, these increases were lower than expected. International financial institutions continue to play a critical role in Georgia's budgetary calculations. Multilateral and bilateral grants and loans totaled 116.4 million lari in 1997 and are expected to total 182.8 million lari in 1998.

There has been strong progress on structural reform. All prices and most trade have been liberalized, legal-framework reform is on schedule, and massive government downsizing is underway. More than 10,500 small enterprises have been privatized, and although privatization of medium- and large-sized firms has been slow, more than 1,200 medium- and large-sized companies have been set up as joint stock companies. A law and a decree establishing the legal basis and procedures for state property privatization should continue to reduce the number of companies controlled by the state.

Due to a lack of investment, Georgia's transportation and communication infrastructure remains in very poor condition. Parliament has set an agenda to start the privatization of the telecommunications industry, although there is still resistance to the plan and Parliament needs to draft implementing legislation.

Georgia's electrical energy sector is in critical condition. Shortages of electricity have resulted in public unrest. In 1998, Georgia began to privatize its energy distribution system and expects to privatize its energy generation system by 2000. Privatization is the only means to generate the capital needed to rehabilitate the sector.

To encourage and support the reform process, the United States. is joining other donors in shifting the focus of assistance from humanitarian to technical and institution-building programs. Provision of legal and technical advisors is complemented by training opportunities for parliamentarians, law enforcement officials, and economic advisors. The U.S. is increasingly willing to impose conditions on assistance in order to encourage improved performance on key issues and privatization of key sectors, including energy. Georgia continues to depend on humanitarian aid, which is increasingly targeted to most-needy groups.

Georgian agricultural production is beginning to recover following the devastation caused by the civil unrest and the restructuring necessary following the breakup of the Soviet Union. Livestock production is beginning to rebound, although it faces periodic disease. Domestic grain production is increasing, and will require sustained political and infrastructure improvements to ensure appropriate distribution and return to farmers. Tea, hazelnut, and citrus production have suffered greatly as a result of the conflict in Abkhazia, an especially fertile area.

While approximately 30% of the Georgian economy is agricultural, crops spoil in the field because farmers either cannot get their produce to market or must pay costs that drive market prices above those for imported goods. In concert with European assistance, Georgia has taken steps to control the quality of and appropriately market its natural spring water. Georgian viniculture, well supported during Soviet times, is internationally acclaimed and has absorbed some new technologies and financing since 1994.

GDP: purchasing power parity - $11.7 billion (1999 est.)

GDP - real growth rate: 3.5% (1999 est.)

GDP - per capita: purchasing power parity - $2,300 (1999 est.)

GDP - composition by sector:
agriculture: 32%
industry: 23%
services: 45% (1999 est.)

Population below poverty line: 60% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 19% (1999 est.)

Labor force: 3.08 million (1997)

Labor force - by occupation: industry and construction 20%, agriculture and forestry 40%, services 40% (1999 est.)

Unemployment rate: 14.5% (1998 est.)

Budget:
revenues: $364 million
expenditures: $568 million, including capital expenditures of $NA (1998)

Industries: steel, aircraft, machine tools, electric locomotives, trucks, tractors, textiles, shoes, chemicals, wood products, wine

Industrial production growth rate: -0.3% (1998 est.)

Electricity - production: 6.96 billion kWh (1998)

Electricity - production by source:
fossil fuel: 14.66%
hydro: 85.34%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 6.123 billion kWh (1998)

Electricity - exports: 700 million kWh (1998)

Electricity - imports: 350 million kWh (1998)

Agriculture - products: citrus, grapes, tea, vegetables, potatoes; livestock

Exports: $330 million (1999 est.)

Exports - commodities: citrus fruits, tea, wine, other agricultural products; diverse types of machinery and metals; chemicals; fuel reexports; textiles

Exports - partners: Russia 27%, Turkey 20%, Azerbaijan 10%, Armenia 8% (1997)

Imports: $840 million (1999 est.)

Imports - commodities: fuel, grain and other foods, machinery and parts, transport equipment

Imports - partners: EU 22%, Russia 15%, Turkey 12%, Azerbaijan 12%, US 7% (1997)

Debt - external: $1.8 billion (1998)

Economic aid - recipient: $212.7 million (1995)

Currency: 1 lari[?] (GEL) = 100 tetri

Exchange rates: lari per US$1 (end of period) - 1.9503 (December 1999), 2.0245 (1999), 1.3898 (1998), 1.2975 (1997), 1.2628 (1996), 1.24 (December 1995)

Fiscal year: calendar year

See also : Georgia