Newsletter Issue 34 | May – June 2020

Georgia’s economic situation in light of COVID-19

Georgia will be severely hit by the COVID-19 pandemic. While economic fundamentals were good going prior to the crisis, forecasts now show a strong deterioration. Most visibly, real GDP growth is expected to change its sign, from a previous forecast of +4.3% to -4.0%.

The Lari experienced significant volatility at the beginning of the crisis in March, but has since stabilized at around 3.00 GEL/USD, in part due to FX interventions by the NBG. Inflation is expected to reach 3.5% at year-end, only slightly above the NBG’s 3% target.

More pronounced is the effect on the current account balance. The deficit, now expected to reach 11.3% of GDP, will be more than double of the previous forecast due to declining exports, tourism revenues and remittances. The tourism sector, which accounts for 8% of GDP, will experience a sharp downturn. It is an open question whether at least some tourists will be able to visit during the main season of July and August.

Public finances are greatly impacted, with a forecasted deficit of 8.5% of GDP. On a positive note, Georgia has been able to secure international funding which is expected to cover the cost of the additional deficit, including an augmented IMF programme, of which approx. USD 200 m are available for immediate budget support.

Download Newsletter 34/2020