What impact will coronavirus have on the Georgian economy?
The NBG has released a statement today in which it says that the recent depreciation of the lari exchange rate is linked to uncertainty caused by the coronavirus outbreak. Photo: Nino Alavidze/Agenda.ge.
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The impact of the coronavirus is rippling through Georgian economy, but it might take a few months to fully see the fallout in data that track economic performance in Georgia.
However, the first signs of the coronavirus crisis are already evident: 10 hotels have closed, 90 per cent of bookings have been cancelled, the number of passengers at Georgian airports decreased, the number of international travellers visiting Georgia also decreased and the national currency lari has started devaluating.
Lari depreciation
The National Bank of Georgia (NBG) released a statement today in which it says that the recent depreciation of the lari exchange rate is linked to the uncertainty caused by the coronavirus outbreak that has been transmitted to the financial markets through the channel of expectation.
As of today 1 USD costs 2.9494 GEL while 1 EUR costs 3.3145 GEL.
Besides coronavirus, the NBG says that another reason for the lari depreciation is the decline in international oil prices.
The decline in international oil prices indicates the decline of foreign demand from Georgia's trading partners by oil export and possible decrease in money transfers. As a result, the risks of reducing foreign exchange inflows have increased, which has been reflected in the foreign exchange market through the channel of expectations.
On the other hand, due to the restriction of air travel, the outflow of currency from Georgia to foreign countries will be reduced, as well as the import of tourism services will be reduced, which will have a positive effect on the exchange rate. At the same time, Georgia's reliance on remittances from oil-exporter countries has been significantly reduced, which is also a positive factor”, read the NBG statement.
The NBG says that its main task is now to maintain price stability in Georgia and to maintain a low rate of inflation.
Tourism
Georgia suspended flight with China, Iran and Italy in order to avoid the spread of coronavirus.
In February Georgian Economy Minister Natia Turnava said that Georgia’s tourism sector would lose about 30 million GEL per month (about $10.75m/€9.58m) following the coronavirus ban on travel.
Hotels, restaurants, tourist agencies and tour operators demand from the government to postpone the budget taxes and bank loans. Meanwhile, the hospitality sector of Georgia tries to minimise the costs because of sharp drop in revenue.
10 hotels are already closed in Tbilisi due to low demand on bookings Photo: Nino Alavidze/Agenda.ge.
Executive Director of Adjara Group Valeri Chekheria said that several floors had been closed at Holiday Inn hotel in Tbilisi as hotel capacity reaches only 20 per cent as of today.
This enables us only to pay salaries. We now hope that our hotel chains in the regions will work better thanks to domestic tourism”, he said.
Prime Minister of Georgia Giorgi Gakharia and the chief executive officers of commercial banks signed an agreement yesterday, which will come up with an action plan to support the tourism sector in the coming days, announced the government of Georgia.
At the meeting the banking sector made its readiness clear to provide maximum support in various forms if and when the tourism sector representatives encounter certain problems in servicing their loans as a result of COVID-19.
PM Gakharia met with CEOs of commercial banks yesterday. Photo: Gov't of Georgia.
Negative effects for the Georgian economy are also expected from a possible drop in bilateral trade with China. The 2019 data show that, Georgia exported from China goods worth $858 million, which is significant for Georgia’s minor economic potential. This makes China among the country’s top three importers, with a steady rise in comparison with previous years (2017 – $732.6 million, 2018 – $833.9 million).
Minister Turnava said that economic prognosis “will not be as high as it was before forecast”.
In February the International Monetary Fund mission Chief Mercedes Vera-Martin said that the IMF forecast 4.3 per cent growth for the Georgian economy in 2020.
Turnava also said today that the government will present an anti-crisis plan within a few days.
The National Bank of Georgia (NBG) has sold $20 million at foreign exchange auction to control the national currency’s changing value against the US dollar.
What support can business expect?
The government of Georgia has presented an anti-crisis plan for Georgian businesses in order to ease the burden caused by the coronavirus crisis. The government responded to the demand of the hotels, restaurants, tourist agencies and tour operators in Georgia and decided to postpone payment of property and income tax by four months.
One individual has tested positive for the new coronavirus – Covid-19 in Georgia increasing the total number of people infected in the country to 25 todat.
Parolees in Georgia will not be required to visit probation offices until April 14 after the World Health Organisation (WHO) declared the outbreak of the China-born Covid-19 virus a pandemic, Georgia’s Minister of Justice Tea Tsulukiani stated earlier today.
Domestic sporting competitions have been suspended in Georgia as a safety measure amid the global coronavirus outbreak, with international tournaments and matches either cancelled or going behind closed doors.
Georgian Government has urged citizens to avoid visits at public service halls, territorial offices and notary bureaus except in cases of extreme necessity for the next two weeks after the World Health Organisation (WHO) declared the outbreak of China-born Covid-19 virus a pandemic. The restriction may apply to gatherings of 100 people or more.
The Prime Minister of Georgia Giorgi Gakharia recommends state agencies and private organisations to work remotely to avoid the spread of coronavirus in the country.
1 USD costs 3.0118 GEL
Against the backdrop of the outbreak of the coronavirus and the global oil crisis, the Georgian national currency, the lari, has hit a record low against the US dollar after falling to 3.0118.
Enterprise Georgia is starting a new programme today to cofinance family-owned, small and medium-size hotels in Georgia. The programme will seek to alleviate financial problems in the tourism industry due to the spread of the coronavirus.
Georgian economic growth may drop to between 0.8 and 3.9 per cent this year, reports the ISET Policy Institute (ISET-PI), one of the first university-based think tanks in the South Caucasus based at the International School of Economics at Tbilisi State University (ISET).
The World Bank projects Georgian economic growth to slow sharply this year, coming close to zero percent in 2020 due to the challenging external environment and impacts of the COVID-19 pandemic. It also forecasts Georgian fiscal deficit (a shortfall in a government's income compared with its spending) to be around 5.2 per cent of the gross domestic product (GDP) in 2020.
Georgian economic growth may drop to between -6 per cent to 2.1 per cent this year due to the new coronavirus crisis, says Galt & Taggart, depending how the crisis plays out. Galt & Taggart gives three possible scenarios (optimistic, mild and pessimistic), according to which Georgian economic growth could differ based on the length of the crisis.
The Georgian Producers' Federation, Georgian Distributors Business Association, the Taxpayers' Union of Georgia, Georgian Employers Association and EU-Georgia Business Council have released a joint statement today in which they present a list of recommendations to the Georgian government to help businesses during the coronavirus pandemic.
Georgia will spend 3.5 billion (about $1.10b/€1.02b) on its coronavirus anti-crisis plan, Georgian Prime Minister Giorgi Gakharia announced earlier today. "For now, the country will spend GEL 3.5 billion on managing the crisis, of which 1.035 billion GEL will be directed at social support of citizens, 2.11 billion GEL will be directed at the economy and entrepreneurs, while 350 million GEL will be spent on the health care of each citizen", Gakharia said.
The National Bank of Georgia has sold $20 million to stabilise the Georgian lari today after further depreciation. Against the backdrop of the outbreak of the coronavirus and the global oil crisis, the Georgian national currency, the lari, has significantly depreciated against the USD in recent weeks.
3 possible scenarios from PMCG
PMCG Research has developed three possible scenarios for the development of the coronavirus crisis in Georgia, each of which correspond to different periods of time for which containment measures remain in place.
Heads of three oil selling entities in Georgia have been detained for the use of false customs documents which resulted in 3,558,799 GEL (more than one million USD) in damages to the state budget.
Georgia has started producing disinfectant in response to the increased demand for hygienic products amid the coronavirus outbreak.
What difficulties are companies experiencing?
A decrease in demand is the most significant side effect of Covid-19 for Georgian companies among all sectors, shows the new study of PricewaterhouseCoopers Georgia LLC (PwC Georgia) and the Investors Council.
Georgian experts expect the Georgian lari to continue appreciating at least until the end of this year if some unexpected event does not occur.
Over half of the enterprises that make up Georgia’s packaging value chain lost more than 50 per cent of their income to lockdown and 83 per cent consider the pandemic a significant threat to their continued operation, says a new study of the European Union and the United Nations Development Programme (UNDP) based on interviews with over 500 companies.
Georgian PM Giorgi Gakharia discussed current and future U.S. International Development Finance Corporation (DFC) projects in Georgia and the role of the DFC in promoting the development of the private sector in Georgia with DFC CEO Adam Boehler earlier today.
Georgian businessmen have asked Prime Minister Giorgi Gakharia to extend benefits businesses enjoyed in the spring amid the coronavirus.
The World Bank’s data show that Georgian GDP will have decreased by six per cent in 2020, whereas the bank forecasts the Georgian economy to grow by four per cent in 2021 and by six per cent in 2022.
A year into the coronavirus pandemic Georgians remain concerned about the state of the economy and the impact of Covid-19, reads poll results released today by the National Democratic Institute (NDI or the Institute) and CRRC Georgia.
The government of Georgia has decided to reduce the cost of a first year permit fee to operate a casino in the capital city of Tbilisi from 5 million GEL to 2.5 million GEL. The decision will apply to permits that will be issued from July 5, 2021 to January 1, 2022.
Only 13% of the government reserve fund has been spent on the Covid-19 pandemic in Georgia in 2020 and in the six months of 2021, says the Institute for Development of Freedom of Information (IDFI). The government reserve fund enables the state to cover the costs of unexpected expenses, such as natural disasters, epidemics, ecological and other types of disasters.