COVID-19 in Georgia Impact and Implications

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 9^th, 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 26^th, 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 20^th 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 26^th. 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 29^th, 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 12^th 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 24^th, 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 15^th is highly important both for the Georgian society and the economy. GoG announced, that Georgian hotels will reopen for domestic travelers from June 15^th and from July 1^st 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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