This week was a week of a big number. Georgia's economy grew by a record 44.8% in April. This is probably the biggest growth index that we have and will see for the foreseeable future.
We heard many loud adjectives this week from the Government representatives and mainly from the Economic Team – 'A truly unprecedented and positive trend' – that came from the Prime Minister of Georgia Irakli Gharibashvili; 'A historic, leap-forward type of growth' – that came from the Minister of Economy Natia Turnava; 'Strong basis for positive expectations to further accelerate growth' – that came from the Minister of Finance Lasha Khutsishvili.
However, there were some more balanced comments as well - Irakli Kovzanadze, Chair of the Budget and Finance Committee of the Parliament, for example, noted that 'high economic growth observed in April is very good, but it does not provide a basis for calming down, because there are a lot of economic challenges and "COVID- quizzes" ahead, which require a lot of work'. And some more comments just stating facts – For example: 'In April, there was an upward trend in all aspects compared to the same period of the previous year' – this is quoting Gogita Todradze, General Director of Geostat on a special press conference.
We have to note here that these are still preliminary figures, which – yes, they do not generally change drastically but which means that at this stage we lack the information to judge how many billions of turnover has been registered in each sector of the economy and which sector is currently driving the leap-frog score.
On the other hand, if we look at the paid taxes – for April 2021 (comparing it to April 2020 and 2019 respectively), the only tax that has been decreased in this period is Revenue Tax, but that's because of the relief measures which had entailed until today that salaries under GEL 750 fully and salaries under GEL 1500 were semi-released from the taxes.
For the rest taxes we see a clear trend of growth:
- Profit Tax has increased by 13.6% compared to 2020, and by 18.3% compared to 2019.
- Excise Tax has increased by 15.7% compared to 2020, and by 40% compared to 2019.
- VAT has increased by 74% compared to 2020, and by 24.2% compared to 2019.
Value Added Tax is especially important in our context since Geostat calculates the economic growth rate based on the turnover of VAT paying enterprises. In April, such enterprises registered GEL 8.44 billion in turnover, which exceeded lockdown numbers in April 2020 by 94%. However, growth is higher than that in 2019, too.
Why is the comparison with the same period in 2019 important?
Because this way, we can partly eliminate the "base effect," and with its exception, we see that the size of the Georgian economy has increased by about 21% compared to April 2019 this year. Due to the lockdown in April 2020, the Georgian economy shrank by 16.6%.
Now, where does all of this lead the Georgian Government?
- First: The Government decided to increase its growth outlook from 4.3% to 6.5%.
- Second: The Government decided to adjust the budget. Namely, the budget deficit will be reduced to 7.1%. At this point, we do not know details, whether the Government will increase its expenditures or not, but #BMG English keeps an eye on every development and will let you know as soon as possible. What we can say so far is that, currently, the volume of the state budget for 2021 stands at an unprecedented GEL 18.38 billion, and the volume of the consolidated budget is also at a record high, amounting to GEL 20.72 billion.
- Third: The Government stresses more actively the recovery in tourism. If it recovers to 40-45% of the 2019 level, then the Government forecasts an optimistic scenario, according to which growth in 2021 will be double-digit. The governmental wording for this possibility is more restrained to 'it is quite possible that the activity will develop in an optimistic scenario' - and in this case, economic growth is estimated to reach 10.2%.
Now, where does all of this lead Georgia's Economy?
Here, for more detached, professional, and objective analysis, let me turn to two leading investment banks and emphasize their main messages, as seen, of course, by the Chief Editor of BM.GE in English and the author of this Note.
- GALT & TAGGART: 'It is without any doubt that Georgia's economy has become significantly active' – this is what the Head of Research Development Eva Bochorishvili said in the Business Morning show today. According to her, Galt and Taggart's forecast for Georgia's economic growth has also been revised upward to 7%, a little bit higher than the Government's outlook.
- TBC CAPITAL: 'I would bet on strengthening the Lari by the end of the year' – this promising phrase comes from TBC Bank's Chief Economist Otar Nadaraia. According to him, there is a boom of economic recovery in the world, at the same time, the pace of recovery in relation to Georgia will be more optimistic than expected.
Now, what should we keep in mind going forward?
- First: This growth has its price, and it is quite costly – state debt is over the 60% threshold of GDP as set by the law, and inflation is still further away from the target. So, we need to sustain the pace of growth to alleviate this burden on Georgia's taxpayers and make the growth more inclusive.
- And second: The pace of vaccination needs to pick up so that high-spending tourists that value their health and safety are also attracted to Georgia and so that we – the Georgian citizens stop being a threat to each other.
Meanwhile - sustainable or not, and we will see this in the nearest future when the Prime Minister finally presents his 10-year strategic vision of our country's development - let me just seize the moment and be happy with the economic growth of 8.4% in January-April 2021.
