Political turmoil taking a toll on Georgia’s economy
Government officials deny the economic roof is starting to cave in.
Georgia’s political crisis, stirred up by the government’s determination to adopt a ‘foreign agents’ law, is experiencing a lull. But the country’s economy is reeling from events of the past two months. The government’s shift away from the West is worrying investors and is sending the value of the national currency downward.
The national currency, the lari, has lost more than 6 percent of its value since the beginning of the year, hitting its lowest value since 2022. Since passage of the ‘foreign agents’ law, the national bank has sold off more than $160 million in reserves to help prop up the lari. The law went into effect in early June, after MPs overrode a presidential veto.
On June 10, the country’s National Statistics Agency released data showing that foreign direct investment for 2024 was down 64 percent from the same period in 2023.
A World Bank report, Global Economic Prospects, released on June 12, offered a cautiously optimistic outlook for the Georgian economy. The bank slightly raised its estimated 2024 growth forecast for Georgia from a January estimated increase of 4.8 percent to a June prediction of 5.2 percent growth. Even so, the country’s growth rate is projected to be lower in 2024 and 2025 than in previous years, following a regional pattern of slowing growth as a post-Covid mini-boom loses steam.
Georgian officials are likely hoping that advances in the development of the Middle Corridor – a trade route connecting markets in China and Europe – can minimize the chances of a drastic decline in Western investment in the coming years. But while countries like Georgia, Azerbaijan, and Kazakhstan invest heavily in trade infrastructure, regional analysts, including experts at the World Bank, suggest the corridor's economic benefit may not live up to expectations.
“From a trade and economic perspective, the MC primarily serves as an opportunity for trade route diversification and enhanced connectivity for Azerbaijan, Georgia, and Kazakhstan,” according to a World Bank report that examines the route’s potential.
The report identifies numerous challenges that need to be addressed before the route becomes economically competitive, including high and “unstable” transport costs, and a “lack of corridor coordination and management.”
The bank’s main recommendation is for the creation of “an institutional mechanism that transcends country boundaries and is empowered to develop, effectively promote, and maximize utilization of the corridor as an integrated trade route and economic region.”
At present, Georgian officials have sought to reassure investors that everything is business as usual for Georgia’s historically welcoming entrepreneurial environment, attempting to divorce politics from economics.
Speaking to reporters in early June, Minister of Economy Levan Davitashvili insisted the ‘foreign agents’ law’s impact on Georgia’s long-term economic performance would be minimal. “This law may neither strengthen nor weaken [the investment climate],” Davitashvili said. “This law is about something else. I think it has nothing to do with investments at all.”
Some of Georgia’s largest trading partners and investors – states like Türkiye, Russia, and China – are unlikely to see the ‘foreign agents’ law as threatening to their interests in the country and will likely try to maintain existing economic ties with Georgia. But each of those states are facing their own domestic economic woes, and thus it will be difficult for them to offset any loss in European and American investment interest in Georgia.
Economist and independent member of parliament Roman Gotsiridze predicted the country is heading for dark economic days. “If this continues, in fact, Georgia’s economy will collapse,” he said on June 10, referring to the massive year-on-year decline in FDI. “A decrease in foreign investment means a rapid depletion of the National Bank’s reserves, devaluation of [Georgia’s currency], rising prices, mass emigration and poverty.”
Brawley Benson is a Tbilisi-based reporter and recent graduate of the Columbia Journalism School who writes about Russia and the countries around it. Follow him on X at @BrawleyEric.
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