IMF: Georgia's growth to depend on politics and relations with Russia

By Margarita Antidze

26.01.2013. The International Monetary Fund has warned that political friction in Georgia could endanger the country's economic prospects.

It also believes that the country's economic health could benefit greatly by restoring trade ties with powerful neighbour Russia.

The IMF forecasts economic growth of 6 percent this year, a slowdown from last year's 7 percent, but the IMF's resident representative said in an interview that this will depend on politics stabilising after billionaire Bidzina Ivanishvili won last October's parliamentary election.

Ivanishvili's rise to the premiership has intensified his rivalry with President Mikheil Saakashvili, the leader of the ex-Soviet country's 'Rose Revolution' of 2003 whose party lost power in the vote.

'There is a real possibility of increased trade with Russia and new sources of foreign investment,' Azim Sadikov, the IMF representative, told Reuters.

'However, if the current uncertainty persists ... then growth in Georgia could be lower than we project currently.'

Ivanishvili, who built a Russian banking-to-retail empire worth $6.4 billion before entering politics in his native Georgia, is promising a more pro-business environment and to work effectively with Moscow.

Political analysts are concerned that friction between Ivanishvili and Saakashvili, whose term expires in October, as well as several arrests of former officials, could deter investors.

Sadikov said there appeared to had been a pause in growth in the post-election period, but indicators for January and February would make the economic picture more clear.

'Activity levels in the next couple of months will tell us if the economy has entered a period of slowdown or it was just a temporary pause,' he said.

A Georgian delegation is expected to visit Moscow next month to discuss restoring of exports to Russia, mainly of Georgian wine and mineral water, that Moscow barred in 2006.

Russia routed Georgian forces in a five-day war in August 2008 over the breakaway regions of South Ossetia and Abkhazia and recognised them as independent nations after the conflict, making them de facto protectorates of Moscow.

'Obviously, gaining access to a large market such as Russia's would give a boost to the Georgian economy ... The impact on the economy of improved access to the Russian market will probably be felt gradually,' Sadikov said.

COMMITMENT

Key economic challenges for the new government would be to ensure sustained growth that creates jobs and reduces poverty.

'Another key priority for the government now should be to communicate to the markets its commitment to pursuing sound macroeconomic policies, further enhancing Georgia's business environment and strengthening its competitiveness,' he said.

The IMF forecasts that inflation in Georgia could reach 3.0-3.5 percent by the end of 2013, up from an average 0.9 percent deflation in 2012, and a fiscal deficit of 2.8 percent of GDP, down from an estimated 3 percent in 2012.

Sadikov questioned whether the government could achieve its goal of boosting foreign direct investment this year to $2 billion, compared to $685 million the first nine months of last year.

'If we are talking about FDI and not all forms of foreign capital, I would not say it's impossible, but that will be an ambitious projection,' Sadikov said.

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