Georgia: Impacted by Russian sanctions

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

Following the violent unrest in Tbilisi after a Russian MP had appeared in the Georgian parliament on 20 June, Russia has banned flights to and imposed trade sanctions on Georgia. More punitive measures may follow. Since then the Georgian lari (GEL) has lost -4% in value against the USD (-8% since the start of the year). Russia’s move will reduce Georgian export growth though it should not lead to a balance of payments crisis in the short term. The current account deficit narrowed from -7.9% of GDP in 2018 as a whole to -6.2% in Q1 2019, and the latter was fully covered by net FDI inflows (average coverage in 2014-2018 was a comfortable 82%). Yet, the sanctions are expected to have an impact on GDP growth (forecast at +4.5% in full-year 2019, after +4.7% in 2018 and +4.9% y/y in Q1 2019) and inflation (up to 4.3% y/y in June from 1.5% in December 2018). The current account deficit should widen again to -8.4% of GDP in full-year 2019 while public and external debt ratios (48% and 84% of GDP, respectively) will remain large, reflecting continued high country risk.