Georgia’s economy is exposed to volatility because of its small market size, high dependence on imports of goods and remittances, and fluctuating exports resulting from unstable demand from its neighbors. Recession in Georgia’s South Caucasus neighbors, the Russian Federation, and Ukraine triggered a decline in gross domestic product (GDP) growth from 4.6% in 2014 to less than 2.9% in 2015 and 2016. The Georgian currency Lari depreciated 52% during October 2014– December 2016 because of the current account deficit and reduced foreign currency inflows. The unemployment rate declined from 16.9% in 2013 to 13.9% in 2017. About 22% of Georgians live below the national poverty line and many depend on remittances. Women, who earn about 65% of the average male wage, have high representation in the low-income segment, especially in rural Georgia, where women are 56% of the labor force. About 30% of Georgian residents live in the capital, Tbilisi, which generated about 48% of GDP in 2016. Although 70% of Georgians live in rural areas and regional towns, agriculture contributed only 9% to GDP in 2017.

GDP growth recovered and reached 5% in 2017, led by trade, tourism, construction, and transport. Improving hydrocarbon prices alleviated pressure on Georgia’s trading partners, and exports of goods increased 24%. In addition, workers’ remittances grew 21% and gross foreign direct investment inflows rose to 12.3% of GDP in 2017. Despite the economic downturn in Turkey, ADB estimates Georgia’s GDP to grow by 4.9% in 2018 and 5.0% in 2019. Although Georgian Lira  stabilized in 2017, dollarization remains high, with 64% of bank liabilities denominated in foreign currency. Reducing dollarization is critical for reducing market and credit risks and remains a long-term challenge. Since 2017, the National Bank of Georgia (NBG) has mandated the use of Lari in economic transactions, increased capital charges for foreign exchange-related banking transactions and exposures, tightened credit exposure limits for unhedged foreign exchange exposures, and required Lari denomination for loan exposures of up to GEL100,000 to mitigate credit risk for retail borrowers