COVID-19 in Georgia Impact and Implications

EvaL Miko /​ Shut­ter­stock

Im Rahmen unseres Pro­jek­tes „Öst­li­che Part­ner­schaft 2.0“ ver­öf­fent­li­chen wir eine Arti­kel­reihe über die drei EU-Asso­zi­ie­rungs­staa­ten (Ukraine, Geor­gien, Moldau). Drei Autorin­nen und Autoren aus der Region (Vero­nika Movchan, Irina Guruli, Sergiu Gaibu) ana­ly­sie­ren die gesund­heit­li­chen, poli­ti­schen, wirt­schaft­li­chen und sozia­len Aus­wir­kun­gen von COVID-19 in ihren Ländern.

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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