On Wednesday, March 7 at 12:00 o’clock At Radisson Blu Iveria Economic Policy Research Center and Open Society Georgia Foundation held a presentation of “Georgian Economic Outlook – Annual Review of the 2011”.
EPRC has started to publish Economic Outlook quarterly reports since July 2011 with financial support of Open Society Foundations and now was presented the Fourth Report. The paper covers major economic developments of the country for the past year; it highlights ongoing challenges that need to be addressed with due diligence by economic policymakers and other relevant institutions.
The presentation was followed by a discussion and attended by representatives from Government, Parliament, NGOs, International Organizations, Embassies and Media.
Although the world economy in 2011 was characterized by some unexpected evens (Japanese Tsunami, the unrest in Middle East, Euro zone crisis), for Georgia 2011 was a recovery from the global financial crisis. However, the growth rates were less than in the pre-crisis period (refer to the detailed report).
As for a country that imports oil and gas products major challenge for 2012 for Georgia remains fiscal consolidation and addressing external vulnerabilities, as well as combating both exogenous and endogenous inflationary pressures.
The key threat for Georgia is the ongoing fiscal and current account deficit that questions the future external sustainability.
For the year of 2011 an estimated amount of nominal GDP of Georgia in Georgian Lari amounts to 22,945.2 mil. GEL, a 10% increase as compared to the last year. The real annual growth rate, i.e. growth rate adjusted for inflation estimate for 2011 is 6.8%.
For international comparison of standard of living, a GDP per Capita (PPP) figure is often used. Purchasing Power Parity rate explores how much money is needed to buy the same amount of goods and services in a different country. Thus, PPP is a less biased measure for comparing differences in living standards of different countries, since the measure takes into account relative costs of living and the inflation rates in a country, rather than using exchange rates that may not be a representative measure for checking real differences between incomes. GDP per capita (PPP) is measured in a so-called international dollar for making comparisons between countries. As of 2011 with 5,450 GDP per capita (PPP) Georgia ranks 111th among 181 countries, the indicator is way below the World Average GDP (PPP) per capita that currently amounts to 10,700 international USD. In other words, standards of living in Georgia are below the world average.
In the report you shall find expert answers to the following questions: which sectors promote economic growth? Why is it that in the conditions of economic growth unemployment/ underemployment still poses a number one issue in the country?
According to the data for 9 months of 2011 the major investor countries in Georgia are Denmark, the Netherlands, and Turkey. For all three quarters the Netherlands is the largest investor, 21% of all investment are originated from that country. If we look at FDI from the viewpoint of sectors mining and manufacturing received 22% of all investments for 9 months of 2011. Energy sector is the largest recipient of all foreign direct investments in the third quarter. That sector has received 32% of all investments in the third quarter that is 86 million USD. Investments were mainly directed towards small-medium hydropower plant building/rehabilitations. The least popular sectors for investors were agriculture and fishing, real estate and hotel and restaurants together with construction.
When talking about the attractiveness of a country for investors, something that investors look at when planning to invest in a country is return on assets that indicates the efficiency of management in transforming assets to generate earnings. It is calculated by dividing earnings by its total assets, the higher the number the better, because the company is earning more money on less investment. The country was doing better at converting its investment into profit in 2011, although is currently worse off compared to the pre-crisis period, with a ROA ratio of 2.2%.
For the year of 2011 total foreign trade turnover for Georgia amounted to 9,244 million USD, a 35% increase compared to the last year.
Around 75% of the total trade is comprised of imports, thus causing a negative trade balance that as of 2011 has reached 4,865 million USD, this represents a 32% increase as compared to 2010 and is record high. A similar trade deficit was observed once in 2008. However, it must be taken into account that economic growth was higher during that time, thus partially balancing this deep deficit.
Top trading partners by turnover were Turkey, Azerbaijan and Ukraine. Azerbaijan is the largest export partner with 19.5% of total exports and Turkey being the largest partner in imports, with 18.0% of total imports coming from there. The commodity positions by exports are motor cars (20.6%), ferro-alloys (11.6%), mineral and chemical fertilizers (6.6%). It must be noted that a drastic increase in automobile exports in the first half of 2011 was caused by an expected change in the customs legislation in Kazakhstan, a major trade partner for Georgia when it comes to automobiles. Commodity position by imports is the following: oil and oil products (12.9%), motor cars (7.2%), petroleum and other gases (3.4%).
Inflation has been a major challenge for Georgia in 2011. According to the National Statistics Office of Georgia, average annual year on year inflation rate for 2011 was 8,5%. Since the second half of 2010 inflation has taken up the growing tendency and equaled a two digit figure for most of the year 2011. Inflation peaked in May 2011 with 13.6% average inflation as compared to the same period of the previous year. The report overviews major causes for inflationary pressure.
As for 2012, food price inflation is expected to abate from 2011 levels but is projected to be slightly above the historical average for the past two decades. Food prices are projected to increase by 2.5 to 3.5% over 2011 levels, more specifically prices on food in grocery stores are expected to increase by 3-4% while food prices at the restaurants are expected to increase by 2 to 3%. Although, price levels for food in 2012 are heavily dependent on other macroeconomic factors as well that are hard to be predicted.
State debt to GDP ratio is maintained at tolerable levels at 31.3% as of 2011, debt-to-export ratio is currently set at 89.0%, while it exceeded a hundred percent in 2009. This means that the country’s state foreign debt is almost as much as annual exports. As to debt-to budgetary revenues indicator, currently the ratio is 135%, it reached its highest in 2010 and equaled 150%.
Even though the government has succeeded in maintaining the state debt levels below the 60% of GDP, according to the data from IMF, gross foreign debt of the country (that is both state and private debt) outreached the 60% of GDP restriction in 2010 and is currently 57.5% with a projection of a decrease in 2012 to 56.6%.
The report at hand gives a detailed overview of the above-mentioned topics – current situation based on the data from 2011, possible reasons and perspectives. The report also touches upon the issues of state budget, banking sector, monetary policy, unemployment, etc.