Russia-Ukraine War will have a negative impact on Georgia along with the Russian economy itself, which GDP is supposed to shrink by 11.2% this year, according to the latest World Bank forecast. The reason is the unprecedented economic sanctions imposed on Russia and the dependence of our country's economy on its northern neighbor.
The Asian Development Bank (ADB) and the World Bank have already cut their economic growth forecasts for Georgia due to the ongoing Russia-Ukraine War.
Namely, ADB reduced its projected growth of 6.5% to 3.5%. The World Bank expects even lower growth in Georgia in 2022. According to the organization, Georgia's GDP will grow by 2.5% this year, which is 3% less than the previous forecast.
ISET Chief Economist Giorgi Papava told BMG that despite forecasts of reduced economic growth, it is important for the Georgian government to look at the process in the longer term. According to the analyst, the war will have an impact on both investments and tourism in the long run.
"This is a more negative effect than whether we will increase by 2% or 3.5% this year. It will also be critical how the current process of EU membership ends," said Giorgi Papava.
As for the figures directly, the economist thinks that remittances from Russia will definitely decrease this year, although the reduction will depend on many factors, most notably the duration of the war.
In 2021, the total amount of remittances increased to USD 2.3 billion. The volume of remittances from Russia exceeded USD 411 million last year, which was approximately USD 47 million (13% more) than in 2020, while the share of Russia in total remittances was 17.5%.
The Asian Development Bank forecasts that total remittances will be down to USD 1.8 billion this year due to reduced remittances from Russia.
"Economic sanctions hinder growth in Russia, remittances are expected to decline to USD 1.8 billion in 2022, while – to USD 1.7 billion in 2023," the ADB report said.
Russia is one of the largest export markets for Georgia. Namely, Russia is the second major export market, where Georgia sold USD 610 million worth of products last year; As a result, its share in total exports increased to 14.4%. Exports to Russia will increase by 38% in 2021 compared to 2020.
Giorgi Papava does not expect a critical decline in exports to Russia this year and says that it is more important for Georgian businesses to think about alternative markets.
"Obviously, exports from Georgia to Russia will not be canceled. I do not think that the government is planning to impose an embargo on exports to Russia, so a large share of exported products will usually continue this process. It is just that economic relations with Russia will become more expensive because the transfer is complicated due to sanctions. There is a lot of uncertainty about the ruble, I mean, the exchange of foreign currency into the ruble, and so on. All this will make economic relations with Russia less attractive for Georgian business. 14% of our total exports accounted for Russia, a 10% economic downturn is expected there, roughly speaking it could lead to 10-20% less purchases of our exported products, which translates into a 2-3% decrease in our total exports. This is not really a critical reduction," Papava said.
As for tourism, 213 thousand visitors came to Georgia from Russia in 2021, which is 11.3% of the visitors to Georgia. The economist believes that the biggest threat posed by this war is that due to the hostilities in the region, visitors from Western Europe may no longer arrive.
