Country risk expert insight: Georgia is the most resilient player across Black Sea territories

Georgia stands firm in rocky neighbourhood

ECR data shows the country on a positive wave, with a stable economic and political outlook.

Panayotis Gavras, BSTDB

Euromoney spoke to Panayotis Gavras, head of policy and strategy at the Black Sea Trade and Development Bank (BSTDB). 

He says: “Georgia has been something of a positive outlier. Among the 12 members of the Black Sea Economic Cooperation it is the best-performing country cumulatively since 2008, slightly ahead of Turkey. 

"Ukraine has suffered a severe recession it is only now getting out of. Russia has suffered slow growth and recession for the last couple of years. And of course Azerbaijan suffered considerable turmoil in 2016, and its first year of negative growth since the mid-1990s.”

Growth indicators

Gavras continues: “Georgia has fared consistently better than its neighbouring states. While people focus on the lower growth rates of 2013-16 relative to the robust numbers of 2010-12, this overlooks the recovery effect from the 2009 recession that boosted the first year. A particularly encouraging sign is that relative to neighbouring countries, investment in Georgia has been relatively high and consistent. Whether one looks at FDI or at gross fixed investment overall, Georgia’s numbers compare favourably.

“This is notable because one of the biggest problems since the global financial crisis in emerging Europe is the failure of investment rates to pick up and the implications it has not just for current GDP performance but for potential growth rates in the future. Growth has been lower in Georgia post-2008 to be sure, but it has averaged around 4.8% per annum in real terms and the improvement can be observed in per capita income and other measurements of living standards.

“Economic management has been quite good, fiscal and monetary policy prudent, and public debt has been kept stable. Gross external debt is a bit high, at around 80% of GDP. However, about half of that is public and the majority there is owed to official lenders on favourable terms. It is something to follow, but not a major source of risk.”

Political risk

Gavras adds: “To a local, Georgian politics appears quite polarized. Depending on whether one is pro- or anti-government you hear about how good they are or about how the ruling party has become too powerful and dangerous for the functioning of political institutions, following the recent parliamentary victory. To an outsider, one sees a great deal of continuity over the last decade, irrespective of who is in power.

“Macroeconomic indicators have steadily improved or remained stable. The business environment has also improved a lot. Moreover, Georgia’s ability to attract FDI equivalent to 8% to 9% of GDP the last three years is a very positive indicator.

“Georgia’s main weakness continues to be its high current account deficit. It may be somewhat inflated by the FDI figures, but the underlying structural trade deficit, which consistently exceeds 20% of GDP, is a weakness. Thus the main source of concern if you are looking for possible vulnerabilities. Reserves are at less than six months of imports pretty consistently, which only further highlights this point.

“While Georgia has improved its resilience thanks to the painful experiences of the past, it remains vulnerable to sudden, sharp external shocks, be they of an economic or geopolitical nature. Having said that, I am optimistic about the country’s future prospects and believe it is well placed to grow at around 3% to 4% per annum consistently, which is higher than what I believe is possible (on a sustained basis) for some of its neighbours.”

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