Proposed Loan and Technical Assistance
Introduction
Loan and Technical Assistance: Addressing Georgia’s Economic Challenges
Georgia’s economy has faced significant volatility due to its small market size, heavy reliance on imports, remittances, and fluctuating export demand from neighbouring countries. The recession in Georgia’s South Caucasus neighbours, the Russian Federation, and Ukraine led to a sharp decline in GDP growth, from 4.6% in 2014 to less than 2.9% in 2015 and 2016. This economic instability was exacerbated by the depreciation of the Georgian Lari, which lost 52% of its value between October 2014 and December 2016, driven by a current account deficit and reduced foreign currency inflows. Despite a decline in unemployment from 16.9% in 2013 to 13.9% in 2017, approximately 22% of Georgians still live below the national poverty line, with many relying on remittances for survival. Women, who earn about 65% of the average male wage, are disproportionately represented in the low-income segment, particularly in rural areas, where they constitute 56% of the labour force. While 70% of Georgians reside in rural areas and regional towns, agriculture contributed only 9% to GDP in 2017, highlighting the need for targeted loans and technical assistance to boost productivity and diversify income sources.
Economic Recovery and the Role of Loan and Technical Assistance
By 2017, Georgia’s GDP growth rebounded to 5%, driven by trade, tourism, construction, and transport. Improved hydrocarbon prices alleviated pressure on Georgia’s trading partners, leading to a 24% increase in goods exports. Additionally, workers’ remittances grew by 21%, and gross foreign direct investment inflows rose to 12.3% of GDP. Despite the economic downturn in Turkey, the Asian Development Bank (ADB) projected Georgia’s GDP to grow by 4.9% in 2018 and 5.0% in 2019. However, challenges such as high dollarization persist, with 64% of bank liabilities denominated in foreign currency. Reducing dollarization is critical for mitigating market and credit risks, and it remains a long-term challenge. To address this, the National Bank of Georgia (NBG) has implemented measures since 2017, including mandating the use of the Lari in economic transactions, increasing capital charges for foreign exchange-related banking transactions, and tightening credit exposure limits for unhedged foreign exchange risks. These efforts underscore the importance of loan and technical assistance in stabilizing the financial sector and promoting sustainable economic growth.
Addressing Regional Disparities and Poverty Through Loan and Technical Assistance
Despite economic recovery, regional disparities and poverty remain pressing issues in Georgia. About 30% of the population resides in the capital, Tbilisi, which generated 48% of GDP in 2016. In contrast, rural areas, where 70% of Georgians live, contribute minimally to GDP, with agriculture accounting for only 9% in 2017. This imbalance highlights the need for targeted loans and technical assistance to support rural development, enhance agricultural productivity, and create employment opportunities. Women in rural areas, who form a significant portion of the labour force, face additional challenges due to wage disparities and limited access to financial resources. By providing loans and technical assistance to small and medium-sized enterprises (SMEs) and agricultural cooperatives, Georgia can empower rural communities, reduce poverty, and promote gender equality. Furthermore, such initiatives can help diversify the economy, reduce dependence on remittances, and foster inclusive growth.
Conclusion: The Path Forward with Loan and Technical Assistance
Georgia’s economic trajectory demonstrates both resilience and vulnerability. While the country has made strides in recovering from economic downturns, challenges such as high dollarization, regional disparities, and poverty persist. Strategic loan and technical assistance can play a pivotal role in addressing these issues by stabilizing the financial sector, supporting rural development, and promoting inclusive growth. By leveraging international partnerships and implementing targeted policies, Georgia can build a more resilient and diversified economy, ensuring long-term prosperity for all its citizens.
For further reading:
Georgia: Technical Assistance Report-Updating the Balance Sheet …