COVID-19 in Georgia Impact and Implications

EvaL Miko /​ Shut­ter­stock

As part of our project “Eastern Part­ner­ship 2.0” we publish a series of arti­cles about the three EU asso­ci­a­tion states (Ukraine, Georgia, Moldova). Three authors from the region (Veronika Movchan, Irina Guruli, Sergiu Gaibu) analyse the health, polit­i­cal, eco­nomic and social impact of COVID-19 in their countries.

2020 has been a chal­leng­ing year, not a single country around the world has managed to escape or avoid the con­se­quences of the pan­demic and Georgia is no excep­tion. As of June 9th, Georgia counts 818 con­firmed cases, 686 recov­ered and 13 deaths. With these sta­tis­tics, inter­na­tional press named Georgia as a success case in the fight against Covid-19. Mea­sures taken by the gov­ern­ment very much resem­ble those taken by other coun­tries, with the dif­fer­ence that Georgia started to intro­duce the mea­sures earlier on, already in the third week after the first con­firmed case. After the first con­firmed case on Feb­ru­ary 26th, the Gov­ern­ment of Georgia (GoG) opted for a set of strict eco­nomic, social and cul­tural restric­tions as a disease response strat­egy, in order to coun­ter­bal­ance a not very strong health­care system which is char­ac­ter­is­tic to devel­op­ing countries.

These early on mea­sures, with a rapid response by the Gov­ern­ment to a nearly com­plete lock­down, efforts from the civil society and media, along with the high sense of respon­si­bil­ity and self-reg­u­la­tion prac­tices from the society as a whole have had a success in main­tain­ing low spread of the disease. However, the damage done to the economy paired with both a lock­down and exter­nal shocks has been quite drastic, and the full-fledged impact is still to be cal­cu­lated. The role of inter­na­tional assis­tance cannot be over­es­ti­mated — up to 1.5 billion USD of inter­na­tional con­tri­bu­tion for Geor­gian economy has already been secured. Sig­nif­i­cant con­tri­bu­tions come from the EU.

In the health­care sector, unlike other devel­op­ing coun­tries, thanks to its strate­gic partner – the United States, Georgia prides itself with a lab­o­ra­tory which com­plies with inter­na­tional stan­dards. The Lugar Center for Public Health Research under the Geor­gian National Center for Disease Control and Public Health (NCDC) has been in the fore­front in this fight.  The U.S gov­ern­ment-funded Lugar Center opened in 2013 and have been under a con­tin­u­ous dis­in­for­ma­tion attack since then. In early 2020, NCDC already reached out to the inter­na­tional part­ners for acquir­ing testing reagent which enabled the Center to engage in early stage disease mon­i­tor­ing and plan­ning. Given the Center’s infra­struc­ture, access to tech­nol­ogy and inter­na­tional part­ner­ships, the Center and its staff were able to adhere to the inter­na­tional best prac­tices in the fight against the spread of the pan­demic. To name just a few, each con­firmed case was fol­lowed by rig­or­ous inves­ti­ga­tion by the epi­demi­ol­o­gists to detect the contact circles and putting all the con­firmed con­tacts in two-week quar­an­tine; start­ing from March 20th all Geor­gian cit­i­zens cross­ing national border are subject to a 14-day manda­tory quarantine.

How the Gov­ern­ment Responded

Georgia had time to prepare for the virus, as the first case was recorded only on Feb­ru­ary 26th. The first steps taken by the Geor­gian gov­ern­ment can be traced back to January. Ini­tially, there were soft warn­ings by the NCDC and the first meeting of the Inter-Agency Coor­di­na­tion Council of the Gov­ern­ment of Georgia to discuss the poten­tial risks of the Covid-19.  With the expo­nen­tial growth of the virus all around the world, Geor­gian society as well as the gov­ern­ment started to eval­u­ate the clear threat of the out­break. With three reported cases, on Feb­ru­ary 29th, GoG decided to shut down schools and other edu­ca­tional institutions.

Start­ing from March, actions coun­ter­ing the spread of the virus became more struc­tured and complex. Namely, Geor­gian author­i­ties started to control the borders, espe­cially for pas­sen­gers coming from high risk regions. By mid-March GoG grad­u­ally started to apply mul­ti­fac­eted restric­tions. Even though the number of reported cases stood at 30, start­ing from March 12th all cul­tural, edu­ca­tional and sport events were post­poned and most of the work­places shifted to dis­tance working. Start­ing from mid-April, due to the under­taken mea­sures, almost all types of eco­nomic activ­i­ties were ceased (includ­ing restric­tions of inter­city travel, driving and a curfew).

Given the wors­ened socio-eco­nomic outlook, on April 24th, GoG pre­sented a time­line for gradual opening of the economy in 6 stages. It was planned to keep a 2‑week gap between the stages, but given the improv­ing sta­tis­tics, in terms of declin­ing number of active cases of Covid-19, and soci­etal pres­sure, the gov­ern­ment opted for a faster reopen­ing. The plan to reopen tourism sector from June 15th is highly impor­tant both for the Geor­gian society and the economy. GoG announced, that Geor­gian hotels will reopen for domes­tic trav­el­ers from June 15th and from July 1st for inter­na­tional trav­el­ers. Inter­na­tional flights are expected to resume grad­u­ally.  Fur­ther­more, Georgia intends to posi­tion itself by having COVID free touris­tic zones for inter­na­tional travelers.

Eco­nomic and Social Impact

Reports from early March had rather opti­mistic expec­ta­tions. However, the fore­casts started to worsen with the spread of the virus. The com­mod­ity exporters as well as small economies were expected to be affected harsher. Given its struc­ture (high levels of infor­mal­ity, dom­i­nance of SMEs, import depen­dence) Georgia’s economy is highly fragile towards inter­na­tional shocks. As an open economy, depen­dent on the inter­na­tional receipts from tourism, trade, invest­ments and remit­tances, Georgia has a limited ability to domes­ti­cally counter the global eco­nomic impli­ca­tions of the world pan­demic. Outlook for 2020 is quite unfa­vor­able and varies by sources, on average a 5 percent shrink­age of the economy is pre­dicted. Due to the high levels of uncer­tainty, it is yet too early to fully assess the eco­nomic and social impact of COVID-19. However, impact of the first wave of the virus is more or less visible. Decrease in demand levels, increase in unem­ploy­ment levels (both tem­po­rary and long-term), increase in poverty levels, pres­sure on the national cur­rency, decrease in receipts from tourism and remit­tances – these are the most visible eco­nomic effects that the pop­u­la­tion of Georgia already started to feel.

For Georgia, as a heavily import-depen­dent country, cur­rency depre­ci­a­tion trans­lates in ele­vated infla­tion­ary pres­sures and a heavy social impact. The gov­ern­ment intro­duced the state program for main­tain­ing prices of primary con­sump­tion food prod­ucts. The program envis­ages sub­si­dies for certain imported prod­ucts to keep their local price stable in the short term period. Sharp decline on the oil prices will have a down­ward pres­sure on the com­mod­ity prices and infla­tion levels, thus slightly coun­ter­bal­anc­ing other neg­a­tive shocks.

In the past years, tourism became one of the impor­tant sources of inter­na­tional receipts for Georgia, this sector gen­er­ates approx­i­mately 11 percent of GDP. With the slow­down in world tourism, it is unlikely that inter­na­tional trav­el­ers’ visits to Georgia will return to their old highs in a short time. This will have an indi­rect mul­ti­plier impact on the adja­cent indus­tries, such as hotels and restaurant.

Another impor­tant source of inter­na­tional receipts and inflow of foreign cur­rency that inter alia is one of the guar­an­tees of strong national cur­rency is Foreign Direct Invest­ment (FDI). Pre­vi­ous years saw a stable decrease in the FDI inflow, post crisis period will heavily affect avail­abil­ity of FDIs on a global scale and com­pe­ti­tion for attract­ing FDIs will be fierce. Decrease can be observed in remit­tances (rep­re­sent­ing 13.5% of GDP) from April 2020, as com­pared to the same period last year, by 43%. The volume of remit­tances sent is 58 million USD less if com­pared to last year.

Eco­nomic impact of COVID-19 will be sub­stan­tial on the exter­nal trade ten­den­cies as well. Notwith­stand­ing the fact that there are prac­ti­cally no restric­tions imposed on the inter­na­tional trade, most prob­a­bly, eco­nomic prob­lems faced by the high risk coun­tries will have a spillover effect on their major part­ners through decrease in aggre­gate demand. As of January-April, 2020, Geor­gian economy saw 11 percent decrease in exports (in April, decrease in exports amount to 28 percent).

Given the harsh eco­nomic impli­ca­tions, the GoG announced the Anti-Crisis Eco­nomic Plan, among others, these mea­sures include payment for gas, elec­tric­ity and util­i­ties for the vul­ner­a­ble groups, co-financ­ing mech­a­nism for sup­port­ing SMEs in the crisis hit sectors such as hotels and restau­rants, intro­duc­tion of guar­an­tee schemes, post­pon­ing tax lia­bil­i­ties, in col­lab­o­ra­tion with the com­mer­cial banks, payment of inter­est rates on loans were post­poned for the three-month period for both indi­vid­u­als and com­pa­nies. These mea­sures rep­re­sent a relief package in the short-term horizon.

Given the bud­getary pres­sure, mit­i­ga­tion mea­sures will be mostly funded through the received inter­na­tional assis­tance, which is made up of both grants and credit schemes. Sig­nif­i­cant amount of assis­tance will come from the EU, divided into three pack­ages. Through the first package Georgia received urgent health­care sup­plies and tech­ni­cal exper­tise, assis­tance to vul­ner­a­ble groups, and wide liq­uid­ity support to SMEs. The second package included over 183 million Euros for Georgia in support to socio-eco­nomic mea­sures, includ­ing a con­tri­bu­tion to bridg­ing the financ­ing gap. These pack­ages have brought the total COVID-related support to Georgia to 250 million Euros in non-reim­bursable grants to date. The third package includes 150 million Euros of loans on highly favor­able terms.

What’s Next?

Eco­nomic turn­around will be a hard path to walk. Many of the eco­nomic activ­i­ties were not just paused, exiting the lock­down will not nec­es­sar­ily result in getting back to normal.  It is logical to assume that much of neg­a­tive aspects of the shock cannot be over­come during this year even if the crisis is liq­ui­dated by summer and signs of eco­nomic nor­mal­iza­tion appear in large coun­tries. It is vital to wisely use the accu­mu­lated inter­na­tional assis­tance for ensur­ing long-term sus­tain­abil­ity and eco­nomic recov­ery. So far the mea­sures taken were directed towards over­com­ing the imme­di­ate eco­nomic and social shocks.  Maneu­ver­ing pos­si­bil­i­ties of the gov­ern­ment of Georgia and the Geor­gian economy are way more limited com­pared to devel­oped economies. The effec­tive­ness of gov­ern­men­tal actions will also largely depend on the speed at which the large exter­nal eco­nomic part­ners of Georgia, espe­cially neigh­bor­ing ones will over­come the crisis.

In the event of the second wave this fall, pre­vi­ous mea­sures taken by most of the coun­tries, i.e. strict lock­down, might not work as effec­tively due to the lower com­pli­ance from the side of the society. There­fore, it will be impor­tant to use this time and prepare the health­care sector for the pos­si­bil­ity of such an outcome. 2020 is the year of par­lia­men­tary elec­tions in Georgia. After being in major­ity for two terms, Geor­gian Dream will enter the pre-elec­tion cam­paign running for the third term. If we will be facing the second wave this fall, the period would coin­cide with the elec­tion period, in this con­junc­ture it will be impor­tant from the side of the gov­ern­ment not to under­mine holding of free and fair elec­tions under the aegis of the fight against Covid-19. There­fore, the fight against the pan­demic can also rep­re­sent a test for democ­racy along with the resilience test of the coun­tries’ polit­i­cal, eco­nomic and gov­er­nance systems.

 

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