TBILISI

The International Monetary Fund (IMF) said that slow vaccination and political uncertainty could slow down Georgia’s economic recovery.

Georgia’s highly tourism-reliant economy has been hit especially hard by the COVID crisis and lacks the resource-extraction or manufacturing base that has helped cushion the blow in some other ex-Soviet countries.

The country started economic recovery in April when it recorded 44.8 percent year-on-year growth. Economic recovery continued to gather pace in May and June as the country eased the majority of the restrictions it had imposed to curb the coronavirus pandemic, businesses reopened and tourists tentatively started to return.

According to the IMF forecast, Georgia’s GDP is projected to grow 7.7 percent in 2021 and 5.8 percent in 2022.

Gross domestic product (GDP) grew by 11.5 percent year-on-year in January-May 2021 after contracting 5.4 percent in the same period last year, the National Statistics office said. In May alone the economy expanded by 25.8 percent, compared with a 13.5 percent contraction a year ago. Growth was recorded in all sectors of the economy.

Last month, officials said that Georgia’s economy might grow faster than initially expected this year after encouraging growth figures in the first four months of 2021 and a rise in exports suggested it was on the path to recovery.

“Significant downside risks remain and contribute to an outlook that is more uncertain than usual,” IMF said in a statement after the mission’s visit to the country.

The Fund said that new COVID-19 variants or vaccination delays could derail the recovery by requiring new lockdowns and reducing external demand, underscoring the paramount importance of controlling the pandemic.

“The authorities have made commendable progress in securing vaccine supplies, but more will be needed, and vaccinations have to accelerate substantially to ensure that more than half of the population is vaccinated by the end of the year,” it said.

The Fund added that renewed political uncertainty amid protests against the government could increase lari volatility and undermine investment and confidence.

“These risks could exacerbate underlying vulnerabilities including high dollarization and foreign currency-denominated debt,” the IMF said.

The Fund said that as the recovery proceeds, the focus of fiscal policy should shift toward unwinding crisis support measures and bringing down the deficit and debt.

“The eventual unwinding of COVID-19 support measures as the pandemic recedes will help shrink the deficit, but additional adjustment will still be needed. Faster deficit reduction in the 2022 budget would better balance over the next two years the need for new revenue or saving measures,” the Fund said.

Over the last decade, Georgia became the post-Soviet region’s premier international tourist destination, something on which a huge part of the country’s economy has come to rely. Over nine million international travellers visited the country in 2019, up from two million in 2010, bringing in  – officially – $3 billion in revenue. However, much of the tourism economy is estimated to be in cash, off-the-books transactions.

The decision to close borders as the pandemic spread affected the tourism sector dramatically. In a further blow to the industry, the country implemented a series of stringent nationwide lockdown measures, including a 9 p.m. curfew and a ban on large gatherings. But many restrictions were lifted in April and May and the curfew moved to 11 p.m. The government lifted the curfew from July 1.

Georgia’s finance minister said last month that the pandemic cost the state budget 7.2 billion lari ($2.3 billion) in 2020 and in the first four months of this year. The tax deficit was 1.9 billion lari.

But despite serious challenges, the economy started to show its first solid signs of recovery in April, when it expanded by a record 44.8 percent, compared with a 16.6 percent contraction a year ago, with a growth recorded in all sectors of the economy except the mining industry.

Foreign trade also showed positive signs, with exports increasing 45 percent year-on-year in May to $340 million. Georgia’s foreign trade turnover increased by 18.2 percent to 5 billion dollars.

In April, IMF has approved the disbursement of $111 million to Georgia under its Extended Fund Facility (EFF) to support the ex-Soviet country’s economy and help it to strengthen resilience to shocks.

The IMF said that allocation of the tranche would bring total disbursements under a three-year programme to $687 million.