2018年-世界发展银行全球_Georgia_Country_Economic_Update_February_2018___Making_the_Recovery_Sustainable_50页_9mb

Summary of Georgia Country Economic Update - February 2018

Core Content

This Country Economic Update (CEU) for Georgia provides an overview of the socio-economic developments and macroeconomic policies in 2017, as well as the outlook for 2018 and beyond. It highlights the country's recovery, the role of foreign direct investment (FDI), and the challenges and opportunities in the financial and social sectors.

Main Points

Recent Socio-Economic Developments

• Political Events: The ruling party, Georgian Dream, initiated a constitutional amendment process after the 2016 parliamentary elections. The new constitution, adopted in 2018, includes significant changes such as the abolition of direct presidential elections and the introduction of a fully proportional parliamentary system in 2024.
• Growth and Inflation: Georgia's GDP growth improved significantly in 2017, reaching 4.8% in the first three quarters, driven by net exports and private consumption. Inflation was at 6.7% in 2017, exceeding the National Bank of Georgia (NBG) target of 4%, mainly due to rising global oil prices and one-time tax increases.
• External Sector: The current account deficit narrowed to 7.1% of GDP in the first three quarters of 2017, compared to 11.2% in the same period of 2016. Exports increased by 22%, and tourism revenue grew by 29%, contributing significantly to the economy.
• Financial Sector: The banking sector showed resilience with credit growth and a capital adequacy ratio (CAR) exceeding regulatory requirements. However, high dollarization and systemic vulnerabilities remain.
• Social Sector: Unemployment remained high at 11.8% in 2016, despite some improvements. The education system has not kept pace with private sector demands, leading to a skills gap and limited job creation.

Macroeconomic Policies and Structural Reforms

• Fiscal Consolidation: The government implemented fiscal reforms, leading to a fiscal deficit of 3.4% of GDP by the end of 2017. The fiscal risk annex in the 2018 budget includes a quantitative reporting of quasi-fiscal relationships and contingent liabilities of state-owned enterprises (SOEs).
• Structural Reforms: Key reforms included the approval of a new civil service remuneration law, the establishment of a Public Investment Management (PIM) framework, and the creation of a PPP unit under the Prime Minister's office. These measures aim to improve governance and public investment efficiency.
• Monetary Policy: The NBG tightened monetary policy, increasing the policy rate three times in 2017 to 7.25%, in response to inflationary pressures and to support macroeconomic stability.

Economic Outlook and Risks

• Growth Outlook: GDP growth is expected to rebound to 5% by 2020, with the main growth driver shifting to external demand. Continued fiscal consolidation and structural reforms are expected to support this recovery.
• Risks: Upside risks include stronger-than-expected domestic demand and a sustained improvement in the external environment. Downside risks involve inward-looking policies in advanced economies and weaker global growth, which could threaten the recovery. A flexible exchange rate and a well-capitalized banking system help mitigate these risks.

Key Information

FDI and Economic Performance

• FDI Trends: FDI inflows increased in 2017, reaching 10.6% of GDP, surpassing the current account deficit and contributing to the country's international reserves.
• Drivers of FDI: FDI was driven by a favorable business environment, infrastructure development, and the legal framework. However, challenges such as an inadequately educated workforce, legal uncertainties, and taxation issues persist.
• Impact of FDI: FDI had a positive correlation with economic growth, gross capital formation, and trade. It also contributed to productivity and employment growth.

Structural Reforms

• Civil Service Law: A new law was introduced to set salary ceilings and ensure public wage bills align with medium-term fiscal projections.
• PPP Framework: A new PPP law was prepared, integrated with the investment plan and budget cycle, and a PPP unit was established at the Prime Minister's office.
• Public Investment Management: A PIM framework was established to strengthen monitoring of public investment, with a dedicated unit at the Ministry of Finance.

Financial Sector

• Capital and Liquidity: The banking sector's capital adequacy ratio (CAR) was 19.1% in December 2017, and the liquidity ratio was 21.3%. Profitability remained high with ROE and ROA at 20.7% and 2.8%, respectively.
• NPLs: Non-performing loans (NPLs) decreased to 6.0% in 2017, compared to 7.3% in 2016, under the IMF FSI methodology.
• Dollarization: About 65% of banking deposits were in foreign currency, with 77% dollarization for individual depositors. This poses foreign exchange risks, especially for SMEs and households.

Social Sector

• Unemployment: Unemployment remained high at 11.8% in 2016, with challenges in job creation despite economic growth.
• Education: The education system is not aligned with private sector needs, resulting in a skills gap and low student performance.

Conclusion

Georgia's economy showed a notable recovery in 2017, supported by improved external demand, stronger fiscal policies, and structural reforms. The country's growth is expected to continue, driven by external demand and public investment. However, challenges such as high dollarization, systemic vulnerabilities in the financial sector, and a skills gap in the labor market remain. The implementation of structural reforms and continued fiscal discipline are crucial for sustaining the recovery and ensuring long-term economic stability.