The COVID-19 pandemic’s health impact has been well-contained, but it has had a significant impact on economic activity, reads the statement of the mission Chief for Georgia at the International Monetary Fund (IMF) Mercedes Vera-Martin.
The COVID-19 pandemic has had a major impact on Georgia’s economy. While the health impact of the pandemic has been well-contained, the external position has deteriorated as tourism revenues have come to a virtual standstill. Preliminary data suggest a tentative recovery in domestic demand beginning in June…Slack demand and the post-lockdown recovery in supply have recently put downward pressures on inflation”, reads the statement of Vera-Martin issued after the IMF staff concluded its virtual mission held during September 8-14, 2020, to discuss recent economic and financial developments and progress with the structural reforms in Georgia.
The statement reads that growth is expected to contract by five percent, ‘a slightly higher contraction than at the time of the Sixth Review, partly reflecting a more severe slowdown in the second quarter of 2020 and a more protracted recovery in external demand’.
Given pervasive uncertainty about the pandemic, downside risks to the outlook dominate. The realization of these risks, including from a more prolonged slowdown in major trading partners and a slower-than-envisaged recovery in tourism, may require continued exchange rate flexibility and additional policy support”, reads the statement.
The statement reads that the government of Georgia ‘expanded social transfers, enacted temporary tax relief measures for businesses and households, and provided some subsidies to sustain activity in the sectors most affected by the shock’, while the National Bank of Georgia has also taken several measures to support economic activity and financial stability, including lowering the policy rate.
Vera-Martin also mentioned the legislation approved by the parliament of Georgia to index basic public pensions in July, and the new insolvency law that is expected to be approved soon.
“Timely implementation of the legislation related to corporate insolvency and banking resolution will help improve the business environment and financial sector resilience. Structural reforms remain essential to limit the scarring in Georgia’s medium-term economic potential and promote higher and more inclusive growth”, she said.