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Since the Rose Revolution of 2003 the Georgian authorities have been pursuing a reform agenda aimed at transforming the country into a European democratic state. There have been notable achievements on this path, including the recent peaceful transfer of power through a free and fair election, which is rare in the region. However, many challenges remain. It is important to ensure an inclusive dialogue with all political parties, including those in opposition, and civil society in order to foster their full participation in the political process.
The combined effects of the 2008 Russia-Georgia war and the global economic crisis hit Georgia hard, but the economy has since recovered strongly. Output expanded by 7.2 per cent in 2011 and 6.1 per cent in 2012, but signs of a slowdown emerged recently. Growth has been broad-based with manufacturing, financial services and tourism among the main contributors. Although the current account deficit increased, rising private inflows triggered appreciation pressures and enabled the central bank to replenish external reserves. The share of non-performing loans in the banking sector has declined steadily. The general government deficit declined to 2.9 per cent of GDP in 2012. The authorities have been able to reduce reliance on official external financing, while maintaining a precautionary arrangement with the IMF. As a result several international rating agencies upgraded their ratings of Georgia’s sovereign debt.
The structural reform context for economic growth is promising. Georgia remains the region’s top reformer. Large- and small-scale privatisation is very advanced, prices are set by the markets, and trade and foreign exchange systems are virtually unconstrained. The authorities have worked to modernise the country’s infrastructure, including construction of the Black Sea Energy Transmission System, which should integrate Georgia into the regional energy market, improve the regulatory framework and set standards for corporate governance and business conduct. The government has continued to further simplify and streamline the tax system, including for small and micro enterprises. These reforms should help reduce the size of the shadow economy, in particular when supported by an independent and impartial judiciary.
Last updated 18 September 2013