June 18, 2020 COVID-19 in Georgia Impact and Impli­ca­ti­ons

COVID-19 in Georgia Impact and Impli­ca­ti­ons

As part of the project “Eastern Partnership 2.0”, Zentrum Liberale Moderne is publishing a series of articles on the three EU member states (Ukraine, Georgia, Moldova). Three regional authors (Veronika Movchan, Irina Guruli, Sergiu Gaibu) analyze the health, political, economic and social effects of COVID-19 in their countries.

2020 has been a chal­len­ging year, not a single country around the world has managed to escape or avoid the con­se­quen­ces of the pan­de­mic and Georgia is no excep­tion. As of June 9th, Georgia counts 818 con­fir­med cases, 686 reco­ve­red and 13 deaths. With these sta­tis­tics, inter­na­tio­nal press named Georgia as a success case in the fight against Covid-19. Mea­su­res taken by the government very much resem­ble those taken by other coun­tries, with the dif­fe­rence that Georgia started to intro­duce the mea­su­res earlier on, already in the third week after the first con­fir­med case. After the first con­fir­med case on Febru­ary 26th, the Government of Georgia (GoG) opted for a set of strict eco­no­mic, social and cul­tu­ral restric­tions as a disease response stra­tegy, in order to coun­ter­ba­lance a not very strong health­care system which is cha­rac­te­ris­tic to deve­lo­ping coun­tries.

These early on mea­su­res, with a rapid response by the Government to a nearly com­plete lock­down, efforts from the civil society and media, along with the high sense of respon­si­bi­lity and self-regu­la­tion prac­ti­ces from the society as a whole have had a success in main­tai­ning low spread of the disease. However, the damage done to the economy paired with both a lock­down and exter­nal shocks has been quite drastic, and the full-fledged impact is still to be cal­cu­la­ted. The role of inter­na­tio­nal assi­s­tance cannot be over­esti­ma­ted – up to 1.5 billion USD of inter­na­tio­nal con­tri­bu­tion for Geor­gian economy has already been secured. Signi­fi­cant con­tri­bu­ti­ons come from the EU.

In the health­care sector, unlike other deve­lo­ping coun­tries, thanks to its stra­te­gic partner – the United States, Georgia prides itself with a labo­ra­tory which com­plies with inter­na­tio­nal stan­dards. The Lugar Center for Public Health Rese­arch under the Geor­gian Natio­nal Center for Disease Control and Public Health (NCDC) has been in the fore­front in this fight.  The U.S government-funded Lugar Center opened in 2013 and have been under a con­ti­nuous dis­in­for­ma­tion attack since then. In early 2020, NCDC already reached out to the inter­na­tio­nal part­ners for acqui­ring testing reagent which enabled the Center to engage in early stage disease moni­to­ring and plan­ning. Given the Center’s infra­st­ruc­ture, access to tech­no­logy and inter­na­tio­nal part­ners­hips, the Center and its staff were able to adhere to the inter­na­tio­nal best prac­ti­ces in the fight against the spread of the pan­de­mic. To name just a few, each con­fir­med case was fol­lo­wed by rigo­rous inves­ti­ga­tion by the epi­de­mio­lo­gists to detect the contact circles and putting all the con­fir­med con­ta­cts in two-week qua­ran­tine; star­ting from March 20th all Geor­gian citi­zens cros­sing natio­nal border are subject to a 14-day man­da­tory qua­ran­tine.

How the Government Respon­ded

Georgia had time to prepare for the virus, as the first case was recor­ded only on Febru­ary 26th. The first steps taken by the Geor­gian government can be traced back to January. Initi­ally, there were soft warnings by the NCDC and the first meeting of the Inter-Agency Coor­di­na­tion Council of the Government of Georgia to discuss the poten­tial risks of the Covid-19.  With the expo­nen­tial growth of the virus all around the world, Geor­gian society as well as the government started to eva­luate the clear threat of the out­break. With three repor­ted cases, on Febru­ary 29th, GoG decided to shut down schools and other edu­ca­tio­nal insti­tu­ti­ons.

Star­ting from March, actions coun­te­ring the spread of the virus became more struc­tu­red and complex. Namely, Geor­gian aut­ho­ri­ties started to control the borders, espe­cially for pas­sen­gers coming from high risk regions. By mid-March GoG gra­du­ally started to apply mul­ti­fa­ce­ted restric­tions. Even though the number of repor­ted cases stood at 30, star­ting from March 12th all cul­tu­ral, edu­ca­tio­nal and sport events were post­po­ned and most of the work­pla­ces shifted to distance working. Star­ting from mid-April, due to the under­ta­ken mea­su­res, almost all types of eco­no­mic acti­vi­ties were ceased (inclu­ding restric­tions of inter­city travel, driving and a curfew).

Given the worsened socio-eco­no­mic outlook, on April 24th, GoG pre­sen­ted a time­line for gradual opening of the economy in 6 stages. It was planned to keep a 2‑week gap between the stages, but given the impro­ving sta­tis­tics, in terms of decli­ning number of active cases of Covid-19, and socie­tal pres­sure, the government opted for a faster reope­ning. The plan to reopen tourism sector from June 15th is highly important both for the Geor­gian society and the economy. GoG announ­ced, that Geor­gian hotels will reopen for domestic tra­velers from June 15th and from July 1st for inter­na­tio­nal tra­velers. Inter­na­tio­nal flights are expec­ted to resume gra­du­ally.  Fur­ther­more, Georgia intends to posi­tion itself by having COVID free tou­ris­tic zones for inter­na­tio­nal tra­velers.

Eco­no­mic and Social Impact

Reports from early March had rather opti­mistic expec­ta­ti­ons. However, the fore­casts started to worsen with the spread of the virus. The com­mo­dity exporters as well as small eco­no­mies were expec­ted to be affec­ted harsher. Given its struc­ture (high levels of infor­ma­lity, domi­nance of SMEs, import depen­dence) Georgia’s economy is highly fragile towards inter­na­tio­nal shocks. As an open economy, depen­dent on the inter­na­tio­nal rece­i­pts from tourism, trade, invest­ments and remit­tan­ces, Georgia has a limited ability to domesti­cally counter the global eco­no­mic impli­ca­ti­ons of the world pan­de­mic. Outlook for 2020 is quite unfa­vor­able and varies by sources, on average a 5 percent shrin­kage of the economy is pre­dic­ted. Due to the high levels of uncer­tainty, it is yet too early to fully assess the eco­no­mic and social impact of COVID-19. However, impact of the first wave of the virus is more or less visible. Decre­ase in demand levels, incre­ase in unem­ploy­ment levels (both tem­porary and long-term), incre­ase in poverty levels, pres­sure on the natio­nal cur­rency, decre­ase in rece­i­pts from tourism and remit­tan­ces – these are the most visible eco­no­mic effects that the popu­la­tion of Georgia already started to feel.

For Georgia, as a heavily import-depen­dent country, cur­rency depre­cia­tion trans­la­tes in ele­va­ted infla­tio­nary pres­su­res and a heavy social impact. The government intro­du­ced the state program for main­tai­ning prices of primary con­sump­tion food pro­ducts. The program envi­sa­ges sub­si­dies for certain impor­ted pro­ducts to keep their local price stable in the short term period. Sharp decline on the oil prices will have a down­ward pres­sure on the com­mo­dity prices and infla­tion levels, thus slightly coun­ter­ba­lan­cing other nega­tive shocks.

In the past years, tourism became one of the important sources of inter­na­tio­nal rece­i­pts for Georgia, this sector gene­ra­tes appro­xi­mately 11 percent of GDP. With the slow­down in world tourism, it is unli­kely that inter­na­tio­nal tra­velers‘ visits to Georgia will return to their old highs in a short time. This will have an indi­rect mul­ti­plier impact on the adja­cent indus­tries, such as hotels and restau­rant.

Another important source of inter­na­tio­nal rece­i­pts and inflow of foreign cur­rency that inter alia is one of the gua­ran­tees of strong natio­nal cur­rency is Foreign Direct Invest­ment (FDI). Pre­vious years saw a stable decre­ase in the FDI inflow, post crisis period will heavily affect avai­la­bi­lity of FDIs on a global scale and com­pe­ti­tion for attrac­ting FDIs will be fierce. Decre­ase can be obser­ved in remit­tan­ces (repre­sen­ting 13.5% of GDP) from April 2020, as com­pa­red to the same period last year, by 43%. The volume of remit­tan­ces sent is 58 million USD less if com­pa­red to last year.

Eco­no­mic impact of COVID-19 will be sub­stan­tial on the exter­nal trade ten­den­cies as well. Not­with­stan­ding the fact that there are prac­ti­cally no restric­tions imposed on the inter­na­tio­nal trade, most pro­bably, eco­no­mic pro­blems faced by the high risk coun­tries will have a spillover effect on their major part­ners through decre­ase in aggre­gate demand. As of January-April, 2020, Geor­gian economy saw 11 percent decre­ase in exports (in April, decre­ase in exports amount to 28 percent).

Given the harsh eco­no­mic impli­ca­ti­ons, the GoG announ­ced the Anti-Crisis Eco­no­mic Plan, among others, these mea­su­res include payment for gas, electri­city and uti­li­ties for the vul­nerable groups, co-finan­cing mecha­nism for sup­por­ting SMEs in the crisis hit sectors such as hotels and restau­rants, intro­duc­tion of gua­ran­tee schemes, post­po­ning tax lia­bi­li­ties, in col­la­bo­ra­tion with the com­mer­cial banks, payment of inte­rest rates on loans were post­po­ned for the three-month period for both indi­vi­du­als and com­pa­nies. These mea­su­res repre­sent a relief package in the short-term horizon.

Given the bud­ge­t­ary pres­sure, miti­ga­tion mea­su­res will be mostly funded through the recei­ved inter­na­tio­nal assi­s­tance, which is made up of both grants and credit schemes. Signi­fi­cant amount of assi­s­tance will come from the EU, divided into three packa­ges. Through the first package Georgia recei­ved urgent health­care sup­plies and tech­ni­cal exper­tise, assi­s­tance to vul­nerable groups, and wide liqui­dity support to SMEs. The second package inclu­ded over 183 million Euros for Georgia in support to socio-eco­no­mic mea­su­res, inclu­ding a con­tri­bu­tion to brid­ging the finan­cing gap. These packa­ges have brought the total COVID-related support to Georgia to 250 million Euros in non-reim­b­urs­able grants to date. The third package inclu­des 150 million Euros of loans on highly favor­able terms.

What’s Next?

Eco­no­mic tur­naround will be a hard path to walk. Many of the eco­no­mic acti­vi­ties were not just paused, exiting the lock­down will not necessa­rily result in getting back to normal.  It is logical to assume that much of nega­tive aspects of the shock cannot be over­come during this year even if the crisis is liqui­da­ted by summer and signs of eco­no­mic nor­ma­liz­a­tion appear in large coun­tries. It is vital to wisely use the accu­mu­la­ted inter­na­tio­nal assi­s­tance for ensu­ring long-term sus­taina­bi­lity and eco­no­mic reco­very. So far the mea­su­res taken were direc­ted towards over­co­m­ing the immediate eco­no­mic and social shocks.  Maneu­vering pos­si­bi­li­ties of the government of Georgia and the Geor­gian economy are way more limited com­pa­red to deve­lo­ped eco­no­mies. The effec­ti­ve­ness of govern­men­tal actions will also largely depend on the speed at which the large exter­nal eco­no­mic part­ners of Georgia, espe­cially neigh­bo­ring ones will over­come the crisis.

In the event of the second wave this fall, pre­vious mea­su­res taken by most of the coun­tries, i.e. strict lock­down, might not work as effec­tively due to the lower com­pli­ance from the side of the society. The­re­fore, it will be important to use this time and prepare the health­care sector for the pos­si­bi­lity of such an outcome. 2020 is the year of par­lia­men­tary elec­tions in Georgia. After being in majo­rity for two terms, Geor­gian Dream will enter the pre-elec­tion cam­paign running for the third term. If we will be facing the second wave this fall, the period would coin­cide with the elec­tion period, in this con­junc­ture it will be important from the side of the government not to under­mine holding of free and fair elec­tions under the aegis of the fight against Covid-19. The­re­fore, the fight against the pan­de­mic can also repre­sent a test for demo­cracy along with the resi­li­ence test of the coun­tries’ poli­ti­cal, eco­no­mic and gover­nance systems.