A FINANCIAL IMPACT OF COVID-19 ON THE ECONOMY OF GEORGIA

Abstract

Covid-19 pandemic have shaped new economic reality. Globalization shaped the new type of economic. Businesses are excessively depended on an international cooperation. After 11/4/2020 when WHO declared the global pandemic, developed states were trying to build own medical equipment factories, but it came up harder than it appeared first. Precisely no one knows a scale of the recession, because it depended on the healthcare issues, not on an economic itself. So, developed states already have announced unprecedented packages of fiscal and monetary stimulus. Novel coronavirus outbreak creates economic threats for Georgian economic and financial stability too. But as everything, it has minimum two sides. Crises and shocks are a favorable time for rethinking everything again. The crisis can more precisely show the vulnerable areas and obtain a political support for changes and reforms. The permanent deficit of current accounts and trade balance is not new normal for Georgian economic, but the pandemic showed how it can increase rapidly by the tourism sector and the money transfers declining. Beside current account balance permanent deficit, a structure of the balance is another challenge. It is obvious that, economic development and improvement of trade balance are basic issues for sustainable economic, but without FDI it is a «mission impossible». The problem has complicated, because of last five-year FDI amounts are shrinking year to year. Another direction of pandemic interference is state budget. The budget revenues structural analyses showed increasing share of sovereign debt. Much more, GDP to sovereign debt ratio reached 40% in 2019. The currency devaluation and economic slowdown worsening this condition. So, we have less opportunities for debt in long run future. Another challenge of Georgian public finance is a structure of the budget expenses. A share of social costs and subsidies are consisting more than 1/3 of the state budget and only 15% consists capital spending, which can really boost economy and promote employment in short run. Amid pandemic, banks credit portfolios also are under the risk, especially loans linked to tourism and development sectors. The pandemic shock needs two side response policy: fiscal stimulus in short run and structural reforms in long run. Creating monetary stimulus packages, Georgia is more restricted than developed economics and emerging markets. So, we need coherent structural reforms to accomplish comprehensive “small government” model. Social spending should be replaced by supporting economic growth and subsequent employment.