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.
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.