COVID-19: Georgia’s Time to Build on Its Strenghts and Begin a New Era of Growth for All Georgians

The Asian Development Bank (ADB) is one of the international public institutions that has pledged support to the Republic of Georgia’s fight against COVID-19. Shane Rosenthal, the Asian Development Bank’s (ADB) country director in Georgia talked to us at Diplomat Magazine about Georgia’s low COVID-19 numbers. He believes that the Georgian government’s commitment to openness, good governance, and the major reforms that have been implemented in Georgia’s public institutions helped to curtail the spread of COVID-19.

Mr. Rosenthal praised the Georgian government’s impressive response to COVID-19 and the effects that trailed it, but he believes that this is the time to focus more on vulnerable Georgians, and build an economic system that caters to everyone, and diversifies the nation’s economy by opening up other sectors of the nation such as agriculture to investment opportunities.

What are your predictions regarding the Georgian economy in 2020 and how long do you think the recovery period will last?

As a regional trade hub and popular destination for tourists, Georgia is particularly vulnerable to COVID-19. With commerce and tourism slowing worldwide, and measures in place to contain the virus, businesses and households have taken a severe hit. Government revenues have fallen at the same time that spending on healthcare and social protection is increasing, adding to the fiscal burden.

Georgia now has the lowest rate of new infections in the Caucasus and Central Asia, and I’m cautiously optimistic about the future—especially as we see signs that the worst might be over in some countries and restrictions on activity and travel begin to be lifted. But the recovery will take time and remain tied to how the rest of the world is doing. Global tourism is expected to recover slowly, making a “V” shaped recovery unlikely.

Concerns about a recurrence of COVID-19 mean it is difficult to make accurate projections about how fast the economy will grow in 2020. At the beginning of the year, the Asian Development Bank (ADB) was anticipating 4.6% growth, but this was revised to -5% after the pandemic took hold. We expect economic growth to accelerate to 5% in 2021 as countries lift containment measures and growth rebounds in some of Georgia’s trading partners. We could see further changes as more becomes known about the full impact of the pandemic and the pace of recovery.

One thing is clear, however, lifting containment measures must be balanced with concern about a recurrence of COVID-19. Moving too quickly could cause new outbreaks to occur, and squander the gains that Georgia has made through sacrifice and discipline. Getting it right will open the door to a lasting, if lengthy recovery.

How do you evaluate the anti-crisis economic recovery plan presented by the Georgian government?

Georgia has responded remarkably well to the pandemic. From the outset the authorities introduced health checks for visitors and ramped up restrictions on movement as the first cases emerged. The National Bank of Georgia quickly eased regulations and stabilized the exchange rate, and we saw commercial banks postpone repayments from borrowers. The government has helped households pay utility bills and augmented unemployment and pension benefits. Programs to assist small and medium size businesses and support the housing market were also introduced.

Much of this has been done using existing mechanisms to target individuals and businesses. For example, the pension system was used to channel higher payments to those over the age of 70, and unemployment benefits were extended to self-employed workers. Going forward it’s important that social assistance schemes are scaled down as the economy recovers, and to ensure they can be quickly reactivated if there is a recurrence of COVID-19 or another economic shock.

Civil society organizations also deserve credit for their support. They have responded by spreading helpful information about the virus, and filling gaps—for example helping local businesses manage seemingly insurmountable challenges, and reaching remote rural areas and agricultural communities. Media has also played an important role, helping to raise awareness and ensuring a constant flow of information. This was critical as individuals adapted to new restrictions and sought to understand the virus, steps they could take to protect their families, and available assistance.

Georgia was well prepared when the crisis occurred. Its long-standing commitment to openness and good governance, particularly reforms and investments in public institutions, provided a strong foundation. Prior to the crisis Georgia had built up fiscal and foreign exchange buffers to help it weather economic shocks, and its economic policymaking institutions had established a reputation for competence and strong governance. All of this helped when the time came to assemble a financing package to help the government with its comprehensive program to contain the pandemic and respond to the impact, including loans and grants from ADB, IMF, World Bank and others.

In short, Georgia’s early action, targeted social assistance, and commitment to reforms all played a role and have put the country in a strong position as it looks ahead and begins the process of recovery.

What should the Georgian government do to reduce the risks of COVID-19 to the economy?

Preventing the virus from spreading should be at the top of the list, because a major recurrence in Georgia would harm the recovery process, add to the fiscal burden, and compromise the country’s reputation as a safe place to visit and do business.

It’s also important to monitor and refine schemes that protect the poor and unemployed, and other vulnerable groups, and to ensure that aids reach the intended beneficiaries. They are essential for preventing vulnerable households from backsliding into poverty during future economic downturns, and can be strengthened over time to help individuals and businesses adapt, for example by providing skills training and working with businesses to update their business strategies and adapt to post-COVID opportunities.

Over the longer term the economy’s resilience should be strengthened by enhancing social protection schemes so that they are well targeted and scalable, investing in education and skillsets that are well-matched with what employers are seeking, and continuing to invest in the physical and institutional infrastructure needed to support a modern economy.

This has to be achieved while carefully using limited public resources and drawing on partnerships with the private sector and civil society groups. With the increasing fiscal burden, it is important to make the most of every Lari.

Overall, what targeted measures can help Georgians turn this crisis into an opportunity?

The pandemic has shown how dependent the economy is on tourism and trade, highlighted an uneven pattern of growth, and given urbanites a taste for clean air, pedestrian-friendly streets and open spaces. While the processes of restarting the economy requires continuing vigilance, Georgia has the opportunity to build on its strengths and initiate a new era of growth that is more resilient and delivers for all Georgians.

This can be achieved with investments and reforms that transform agriculture with higher productivity and better market linkages, and with programs that improve urban infrastructure and services and support balanced regional development. Strengthening the social protection system can help ensure no one is left behind, and stronger vocational skills training would enable more people to participate in economic growth, and benefit businesses and investors.

This is also the right time for Georgia to better leverage its Free Trade Agreements with the EU, China, Turkey and others. As the recovery gains momentum, certain industries are positioned to tap into export markets but might need help doing so. A closer look at services may be warranted, as these have seen higher growth relative to trade in goods in recent years. The government and private sector can work together, tapping into new opportunities as global supply chains seek resilience in the post-COVID era, and move toward greater automation. Georgia’s success in tackling the spread of COVID-19 could boost its attractiveness for investors.

Please tell us more about ADB’s support package for Georgia’s fight against the COVID-19 pandemic.

Our team is working on a substantial package of support this year, in response to COVID-19 and as part of our longer-term support for livable cities, improved infrastructure and regional connectivity. We are supporting reforms in the energy and water sectors and preparing major new programs in agriculture and skills development. These are expected to roll out in 2020 and 2021 and help set the stage for economic recovery. ADB’s support also includes financing directly to the private sector.

ADB’s support for COVID-19 response started with the recent approval of a $100 million loan to help finance the government’s anti-crisis economic recovery plan, and a grant for state-of-the-art equipment needed for rapid coronavirus testing. The $100 million COVID-19 Active Response and Expenditure Support Program will help the government finance temporary payments for up to 350,000 formal-sector workers who could lose their jobs, one-off payments for up to 250,000 informal or self-employed workers, and subsidized utility bills for 1.2 million families. There are also tax deferments for about 4,000 small and medium-sized tourism businesses and subsidized loan repayments for 2,000 small and medium-sized hotels. To help contain the spread of the disease, the loan will support free access to COVID-19 diagnostic and treatment services.

With a view to the future, we are now working with the authorities on new programs to further strengthen social protection schemes and public debt management, boost the relevance of vocational skills training, and increase agricultural productivity. ADB’s support is focused not just on building new infrastructure, but on the systems and institutions responsible for managing these assets and delivering services. This means helping state owned enterprises responsible for electricity and water to become more efficient, improve corporate governance, and reduce dependence on public funding. We are also ramping up our assistance to the private sector, for example helping banks continue to provide capital where it is needed, and extending their reach to small and medium size business.