Georgian economy in 2003-2017

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Ivane Javakhishvili Tbilisi State University Press
The article covers the Georgian economic overview and analysis in the years of 2003-2017, which is important in order to identify the necessary aspects for country’s economic development. As a result of global economic challenges and risks it is crucial to create, maintain and improve stable macroeconomic environment in Georgia. A number of European countries are facing problems that are associated with macroeconomic parameters such as high debt level or high debt budget deficits. Depending on the fact that the Georgian economy is fully integrated into the world economy, the world financial crisis is directly reflected on Georgia, which implies that the world’s reduced economic growth will result in reduced demand for Georgian products. The above mentioned situation will cause investors’ caution and as a result foreign direct investments will be reduced. The goal of the Georgian government is to reach the high level of economic growth, as it will attract more investments and create new jobs. Over the past decade, Georgia’s gross domestic product (GDP) increased on average by 4.2% indicating that the post-revolutionary reforms have played a significant role and therefore positively reflected on macroeconomic indicators. Due to the fact that the economy of Georgia is not structurally formed, it is not enought to use only GDP dynamics as an evaluation factor of the country’s economic situation. Therefore, it is necessary to examine the country’s condition with the variables such as export income, foreign direct investments, trade, transfers. In the article we are offering detail analysis of the Georgia’s economic performance starting from 2003 and identified key challenges that are facing country’s economy. If we observe the growth rate of Georgia’s gross domestic product (see Figure 1) we will see that Georgia’s economy grew by 5.3% in 2004-2017 years with the highest increase in 2007 (12.6%) and with the lowest in 2009 (3.7%). In order to finance investment, Georgia mainly relied on foreign direct investments (FDI) (see diagram 3). Since 2015, more that 12% of the total investment has been financed through FDI’s. Despite the fact that the FDI’s have positive tendency on Georgia’s economy it is crucial to emphasize that the reliance on FDI’s is too risky for the country due to the increased competition from its neighbour countries. In terms of foreign economic activity, positive trends have been identified in 2017, which is reflected in a significant reduction in current account deficit (see Figure 5). To summarize, we can say that for country’s economic development in addition to the growth rate of GDP it is crucial to observe other macroeconomic variables. During the years 2003-2017 we have emphasized important implications such as foreign trade deficit, small amount of country’s savings, increased state debt level, depreciation of national currency, which significantly damages the country’s economy. Georgia is in a leading position in the region based on its robust growth rate, however it is still not enough to improve the social condition of the population. In the article we have presented main driving forces for Georgia’s economic growth, such as investments, the growth of which is due to the fiscal stability in the country.
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Economic growth, total domestic product, direct foreign investment, deficit account
Economics and Business, №2, 2019, pp. 107-118