The World Bank published a report Georgia Human Capital Review with the financial support of the European Union. As of the document, Georgia’s economy has grown significantly over the past decade, leading to dramatic reductions in poverty and increases in the middle class. With a small and open economy, Georgia has a population of 3.7 million and a per capita gross domestic product (GDP) of USD 4,275 in 2020. Georgia’s economy grew at an average annual rate of 4.8 percent in the decade prior to the COVID-19 pandemic, and because of sustained growth for almost three decades the country’s GDP per capita rose from 10 percent of that of the European Union (EU) in 1995, to a third in 2019. The poverty rate also fell dramatically, from 37.3 percent in 2010 to 19.5 percent in 2019, with the largest decline in poverty observed in rural areas. However, the rate increased slightly.
New challenges are emerging that may threaten the country’s path towards prosperity. Poor quality employment, rapid aging, high migration rates and substantial inequalities across the territory and between socioeconomic groups are slowing the country’s path towards long-term, shared prosperity.
At close to 12 percent in 2019, unemployment was among the highest in Europe and Central Asia pre-COVID-19; and many jobs continue to be of poor quality, with much of the population trapped in precarious and low productivity jobs.1 Labor market opportunities also remain quite dire for youth: one in four youth aged 15-24 is neither in employment, education nor training. Moreover, Georgia’s economic development brought higher welfare, but also a lower fertility rate and higher life expectancy, both of which are contributing to rapid population aging: by 2050 each working age adult will have to support 0.4 elderly people. The challenge of an aging population is exacerbated by high outmigration, mostly of working-age people, which is further reducing the size of the labor force. Substantial inequalities across individuals and regions also undermine the country’s ability to share prosperity. With a Gini index close to 0.38, Georgia is among the most unequal countries in Europe and Central Asia. Inequalities emerge early in life, and stem in part from major differences in human capital endowments. Inequalities are associated with many characteristics, such as ethnicity and gender, but can also be observed across regions – with the poorest regions not only facing more people in destitution, but also greater challenges to the delivery of quality services.
Because of Georgia’s human capital endowment, a child born in the country today will on average only be 57 percent as productive as he or she could be with complete education and full health. While Georgia’s Human Capital Index score is similar to those of countries with similar levels of development, it remains well below the Europe and Central Asia (ECA) average for low- and middle-income countries, and well below the EU average. Moreover, if elements that include the performance of higher education and non-communicable diseases (NCDs) are included productivity drops even further – to 40 percent.
Boosting inclusion and quality human capital will be crucial for addressing emerging productivity, aging and inclusion challenges and steering the country towards sustainable and inclusive growth. Better skills and health can help people find better jobs, be more productive at work, work longer, and age more healthily. Quality human capital would also alleviate supporting the elderly population, both because people would be able to work longer, and because they would be more productive. More quality jobs at home may also help control the flow of migrants searching for better economic opportunities abroad. Addressing inequalities in human capital endowments, labor market opportunities, and incomes will also be essential for supporting long-term prosperity, especially given an aging and shrinking population: with fewer working-age people left to support an increasingly larger elderly population, it is essential for workers of both genders and all backgrounds to reach their full productive potential.
The COVID-19 pandemic also highlighted the importance of building resilient delivery systems to support people during crises and avoid losses in human capital. Robust delivery systems and crisis preparedness are key for a solid response. For instance, decentralization of online teaching arrangements, lack of training on use of information technology (IT), and lack of regular monitoring of students and school performance reduced the effectiveness of distance learning. And the absence of an unemployment insurance scheme obliged the government to implement a less effective temporary unemployment assistance scheme for formal workers.
Human capital challenges remain significant Despite substantial progress, child development outcomes remain significantly below the EU average. In the past two decades Georgia has embarked on a series of important reforms across human development sectors that led to significant improvements in child development outcomes. Despite this progress, however, challenges remain. Stunting – which affects cognitive development all along children’s learning path – can still be observed in close to 6 percent of children. Nearly 40 percent of children aged 2-7 have high concentrations of lead in their blood, affecting their cognitive and socioemotional development. Almost half of Georgian children younger than five have less than three children’s books at home; and almost one in four children does not attend kindergarten, compared to close to universal enrollment in the European Union.
Gaps in early childhood development reflect strong inequities across income, geographical, and ethnic lines that will continue along the life cycle. Stunting, for instance, is more than three times as prevalent in households where the mother’s educational attainment is lower secondary education, than those where she has higher education. Children living in rural regions are thirty percentage points less likely to have more than three children’s book at home than children from urban areas. Less than one in three children of Azerbaijani ethnicity attend
kindergarten, compared to more than eight in ten Georgian children. These early gaps affect brain development and will prevent effective accumulation of human capital all along people’s life cycle, ultimately affecting their wellbeing and impeding them from realizing their full productive potential.
Progress in improving education outcomes remains modest. Georgia managed to achieve relatively high enrollment rates: at 106 percent
(in 2013), gross primary and basic (through grades 1-9) school enrolment rates are close to the EU average (110 percent). However, Georgia has the second lowest reading score in the region in the 2018 Programme for International Student Assessment (PISA) test scores, which captures the reading and understanding ability of 15-year-old students: 65 percent of the country’s 15-year-old students are functionally illiterate, meaning that they cannot correctly process and understand a simple text. Quality also remains an issue in higher education, which remains far below the average of the EU and of many other ECA countries. The low quality of the education delivered is affecting people’s incomes and employment opportunities, and Georgia’s ability to boost productivity: not having the skills sought after in the labor market significantly reduces the chances of workers securing quality jobs, which will affect their incomes and productivity throughout their careers.
Gender biases also affect women’s opportunities. The gender gap in labor force participation stands at 19 percentage points; and the wage gap results in men earning 16 percent more than women, after controlling for differences in demographic and job characteristics. The occupational and sectoral segregation of women also locks them in economic activities with lower earnings and tends to exclude them from science, technology, engineering, and math (STEM) fields.
Later in life, Georgians face among the highest incidence of non-communicable diseases in ECA: this, again, is affecting productivity, life expectancy and healthy aging. The prevalence of NCDs in Georgia is much higher than the EU average and the average of its development peers. These high rates of NCDs negatively affect people throughout their life cycle. At working age, NCDs affect workers’ productivity; and some people may be forced by NCDs to work less or retire earlier than they would have liked to, thereby shrinking the working population further in a country that is already rapidly aging. The high incidence of NCDs is also one of the main causes of low life expectancy,
especially for men, and also affects aging and the quality of life of many elderly persons. High prevalence of NCDs also increased the likelihood of developing severe forms of disease during the COVID-19 pandemic. While prevention of NCDs at primary care level is relatively cost effective, providing comprehensive treatment is expensive and adds an unnecessary fiscal burden to the health system.
High out-of-pocket health expenditures force many poor and vulnerable households to choose between falling further into destitution to pay for health care and not seeking treatment when it is required. Impoverishing out-of-pocket health expenditures are the highest in Europe and Central Asia, and an estimated 5.7 percent of the population is pushed below the poverty line each year because of health expenditure. Such a harsh tradeoff reinforces inequities in health outcomes throughout people’s life cycles.
The COVID-19 pandemic affected human capital in both the short- and the long-term. From February 2020 to January 2022 there were around 1,000,000 confirmed cases of COVID-19 in Georgia, with around 15,000 deaths. But the health impacts of the pandemic went beyond COVID-19: rehabilitation, palliative and long-term care services experienced major disruptions, which have been particularly problematic for those living with NCDs who need regular or long-term care. In the field of education, Georgia was forced to close schools for 65 days – almost a third of the 2019-2020 academic year – remote teaching; and throughout 2020-2021 education was offered in a hybrid mode. International evidence suggests that the pandemic will result in substantial learning and earning losses, especially for marginalized groups including the poor, students with special needs, and minority ethnic groups. Finally, the pandemic also had a significant impact on people’s livelihoods that may leave long-term scars: more than one-third of the employed were unable to work at the peak of the restrictions. Poverty is estimated to have risen by 5.4 percentage points in 2020, even as the government’s sizable support package likely prevented an even greater increase in poverty.
Maintaining the reform momentum to deliver better and more equitable services
While substantial reforms have been implemented in the past two decades, Georgia’s human capital requires an inclusion and quality boost, and human development spending an efficiency boost. Overall, spending in the human development sectors remains low and inefficient; most workers in the social sectors are poorly remunerated, and many lack the necessary qualifications and support mechanisms; monitoring and quality control mechanisms are insufficient; and – while decentralization of service provision brings accountability at the local level – poor municipalities lack the financial and technical support required to deliver quality services. To cope with these pitfalls the government has initiated several important reforms: the ongoing development of a social code, for instance, may help to improve the effectiveness of social spending by strengthening intersectoral dialogue and improving the institutional framework. Nevertheless, because of the pandemic and other factors some reforms are stalling, and some crucial aspects – such as investing in regular monitoring and evaluation – may still be missing in some sectors. To further improve human capital, the Ministry of Finance and the line ministries should keep the reform momentum going. Important areas for reform include:
* Increasing the level and efficiency of spending in the social sectors.
* Making social spending more equitable
* Revisiting the decentralization process
* Boosting monitoring, evaluation and feedback loop mechanisms, making use of the new opportunities offered by digitalization
* Improving the social sectors’ workforce management and support
* Boosting cross-sectoral coordination and collaboration
* Preparing and investing in crisis response plans
