Economic Overview

After gaining independence in 1991, Georgia lost all economic ties with the former Soviet republics with which it had been traditionally integrated. External shocks and internal problems virtually brought Georgia's economy to a halt in the early 1990s. In 1994 Georgia started close cooperation with international organizations, primarily the IMF and the WB, which facilitated implementation of structural and institutional reforms and the establishment of liberal legislative basis.

For the U.S. Department of State’s Background Note on Georgia (September 2005) please click here.

GDP

The trend in GDP growth has remained robust, with government predictions for GDP growth in 2005 at 8.5%. In Q1 2005, GDP totaled USD 1,355.8 million, a real growth rate of 7.3%. In 2004, GDP reached USD 5,200 million (USD 1,147 per capita) while in 2003, it was USD 3,992 million (USD 876 per capita). The nominal annual growth rate of GEL-denominated GDP was 16%, while real growth was about 6%.

GDP Trends

Note: Final figures for 2004 are expected to be released by end November 2005.

All major sectors of the economy, except mining, reported positive growth with the largest (>10%) growth recorded in the processing, finance, trade and repair, and healthcare sectors. Agriculture holds the largest share of GDP at 17.3% followed by trade and repair (13.4%), and transport (8.6%).

Telecommunications reported a 21.3% growth in output during Q1 2005 versus the same period in 2004, and was the fastest growing sector in 2004 with 25% growth rate, followed by industry (12%) and various services (11.7%). Even though agriculture has the highest share in GDP, its growth rate, as well as that of household food processing was negative. Products in these sectors are mostly for self-consumption or produced by businesses that are not officially registered. Anti-corruption measures undertaken by the government and improved tax administration reduced the scale of illegal economic activity and the share of unregistered production decreased from 33.4% in 2003 to 28.8% in 2004.

Foreign debt

Georgia is a borrowing country acquiring significant foreign debt since independence, mostly in the form of loans from international financial organizations and foreign countries, as well as debts taken under state guarantee by various companies operating in the 1990s, particularly for energy and grain imports.

As of September 2005 the National Bank of Georgia reports the country’s outstanding foreign debt, excluding credit guaranteed by the government, totaled USD 1,664.36 million. Georgia owes the largest amounts to the WB and IMF (USD 678 million and 265 million, respectively) and, among foreign countries, to Turkmenistan (USD 157 million) and Russia (USD 153 million) for energy imports.

In July 2004, Georgia reached a new agreement with official creditor countries of the Paris Club on restructuring USD 153.4 million needed for foreign debt service, due from 1 June 2004 to 31 December 2006.

Balance of payment

Georgia's current account balance is negative and over 9 months of 2004 the trade deficit comprised 7.3% of GDP. An increase in registered trade turnover resulting from the legalization of import and export flows was a significant trend observed in 2004. The high economic growth rate also facilitates increase in trade turnover.

Main Aggregates of The Current Account

Georgia has a positive balance in service trade. Transportation, tourism, communications, private and financial services (excluding insurance) ensures the inflow of revenues. The country has significant potential to increase service exports while the transport and tourism sectors are widely held to be the most probable sectors for growth. Caspian region oil and gas exports via Georgia will significantly boost the country’s future transit revenues.

Other sources for financing the trade deficit are transfers by Georgians living abroad and foreign grants. At a donor’s conference in Brussels in June 2004, Georgia was promised USD 1.1 billion in aid in 2004-2006, two thirds of which are grants.

Inflation

In August 2005, the inflation rate according to the IMF was 7.5%, after reaching 10.4% in April. To see an October 2005 IMF press release on the regional economic outlook, please click here.

Annual Inflation

Employment and social indicators

In general, the unemployment rate has increased since 2003 as government reforms streamlined bloated bureaucracies. The nationwide average monthly nominal salary in Q1 2005 was approximately USD 103.

Main Labor Indicators