13.Jun .2021 22:07

#COVID19, Poverty and Other Dynamics - #Georgia

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As the accelerating spread of COVID-19 triggered the first global wave of lockdowns and social distancing measures last spring, it quickly became clear this would have a sweeping effect on the world not only from the public health but also from the economic standpoint. And so it is: COVID-19 has become both the synonym of economic crisis as well as a public health one.

According to the Absolute Poverty Statistics, there has not been a single year in the last decade when poverty has increased so dramatically. For those who managed to stay above the poverty threshold, during the pandemic 2020, the average monthly incomes decreased both in terms of households as well as per capita.

The share of income from pensions, scholarships and social assistance increased due to different assistance programs that the government has provided to both citizens and businesses as part of its anti-crisis plan, and which was mainly financed with debt mobilized quite swiftly with the support of IFIs. As for transfers, according to the World Bank, Georgia is 21st in the world with its dependency on transfers, which means that if not for its citizens living and working abroad and sending money to their families and relatives here, the local demand would be even lower.

The share of both - income from wages and self-employment has decreased. The reasons for this are to be found in the employment numbers during the pandemic. The pandemic 2020 closed with a record high unemployment rate, and both economic activity and employment rate have fallen. The impact was bigger on hired employees, while self-employment increased slightly by the end of the pandemic 2020. The largest share of the self-employed are mainly subsistence farmers.

We often hear that the economic crisis faced by COVID-19 is so dramatic, because the pandemic affects not only the supply side but the demand side as well. In 2020, the average monthly expenditures of the population in Georgia decreased both in terms of households and per capita. Expenditures on food, beverages, tobacco has a significant share in the structure of the cash consumption expenditures. Almost everything that dominates in household expenditures is more expensive today due to much higher inflation than that of NBG’s target.

Even though Georgia has a floating exchange rate and neither government nor the Central Bank want to take any responsibility on how the national currency behaves in this country, the stubborn fact is that Lari depreciation has a very strong spill-over effect on prices, since Georgia is still an import-dependent country.

After the record 44.8% economic growth in April 2021- which we have analyzed together before in The Checkpoints – Lari has strengthened its trajectory against the US dollar. If this trend is maintained then importers and distributors assure us that we should expect lower prices on most goods from September.

The only way for Lari to stay strong is to open the economy. With easing the restrictions, including the opening of land borders, at this moment of time, the private sector seems to have improved expectations which, considering the structure of Georgia’s economy, has quite a weight on forming the exchange rate.

However, the pandemic hasn’t yet gone anywhere which means that opening borders without the sufficient pace of vaccination, might end up as a booster of another epidemiological wave and a strong reason to lockdown, again. The government administration says that more than 3.6 million doses of vaccine will be mobilized in Georgia late this year, and that active preparations for massive roll out of COVID-jabs are already underway.

The Ministry of Health has one week to develop a plan for mass-vaccination sites, which will be submitted to the Coordinating Council for approval. Meanwhile, the National Center for Disease Control and Public Health (NCDC) will train additional brigades and rural doctors to be involved in this process. The Deputy Minister of Health has also assured us that massive vaccination will allow the country to vaccinate 18% of the adult population by the end of September, and that expectations that a massive roll out of COVID-jabs will start in the near future, are real.

So it seems, the coming months could prove crucial. One concern is that Lari strengthening expectations, by businesses and consumers alike, cannot be taken for granted. With the latest consistent trend of Lari devaluation, businesses and consumers are cautious that the current trend of strengthening could be sustained. Such behavioral changes can morph into a vicious cycle, with businesses and consumers stockpiling more USD before they need them. That would only reinforce depreciation and respectively, inflationary pressures, and lead to an even stricter monetary policy decisions, hampering economic growth, prolonging Janus-faced pandemic and worsening living conditions of Georgian citizens further.

#TheCheckpoints - 13.06.2021