2020 Index of Economic Freedom: Georgia 12th in the World, 6th in Europe

Georgia’s economic freedom score is 77.1, making the country's economy the 12th freest in the 2020 Index by the Heritage Foundation.

Its overall score has increased by 1.2 points with noticeable improvements on all indicators related to the rule of law. Georgia is ranked 6th among 45 countries in the Europe region, and its overall score is well above the regional and world averages.

"The Georgian economy continues its spectacular, seven-year run up the ranks of the mostly free. GDP has also been expanding at a healthy rate for the past five years," reads the report published by Heritage Foundation. 

It is also highlighted that multi-year reforms to reduce corruption, cut regulation, and simplify taxes have led to upward movement in all aspects of economic freedom.

However, the publication also notes that a top-10 ranking will require even more intensive efforts to improve perceptions of government integrity and judicial effectiveness.

"A good first step to avoiding controversies over judicial appointments would be legislative action to protect the independence of the judiciary," it reads. 

The survey discusses the background of the country's current economic conditions, recalling its forcible integration into the Soviet Union back in 1921 and Russian occupation in 2008, which had a significant negative impact on its economic development and progress. 

"Georgia was forcibly incorporated into the Soviet Union in 1921 and regained its independence in 1991. Russia invaded Georgia in 2008 and continues to occupy the South Ossetia and Abkhazia regions, which account for approximately 20 percent of Georgia’s territory. Weeks of protests in mid-2019 highlighted continuing Georgia–Russia tensions. Georgian Dream continues to be the country’s ruling party, but Mamuka Bakhtadze was replaced as prime minister in September 2019 by controversial Minister of Internal Affairs Georgi Gakharia, whose resignation had been demanded during the protests. Georgia’s economy has improved noticeably after years of economic recession. Agriculture and related industries employ over half of the workforce. Georgia remains an official aspirant for NATO membership," reads the report. 

As for the rule of law, the Heritage Foundation notes that secured interests in both real and personal property are recognized and recorded, however, deficiencies in court operations can keep investors from realizing their rights in the property offered as collateral. Despite ongoing judicial reforms, substantial executive and legislative interference in the courts persists.

"Georgia has made great progress in fighting petty corruption, but high-level “elite corruption” by public officials remains a problem," the survey emphasizes. 

Georgia's judicial system ranked 18th in Europe's top 20 and the first in Eastern Europe.

Heritage Foundation's assessment has shown that Georgia's judicial system is ahead of the 14 EU states - Spain, Italy, Poland, Croatia, Czech Republic, Hungary, Malta, Latvia, Greece, Cyprus, Romania, Bulgaria, Slovakia and Slovenia.

It is noteworthy that for the fourth year in a row, the Heritage Foundation places the Georgian judicial system among the top 20 in Europe.

The leading American organization evaluated the judicial systems of the world countries considering the following criteria:

• Judicial independence
• Quality of the judicial process
• Favoritism in obtaining judicial decisions

The flat individual income tax rate is 20%, and the flat corporate tax rate is 15%. Other taxes include value-added and dividends taxes. The overall tax burden equals 25.7% of total domestic income. Government spending has amounted to 9.6% of the country’s output (GDP) over the past three years, and budget deficits have averaged 1.0% of GDP. Public debt is equivalent to 44.5% of GDP.

Business-friendly changes implemented by the local authorities are also highlighted. 

"Georgia has recently made a number of business-friendly changes, although requiring that a value-added tax must be levied on advance payments for goods and services has increased business costs. Business friendliness outstrips business friendliness in other post-Soviet countries. Labor costs are low. Privatization of many water and power utility companies in Georgia has reduced the cost of government subsidies," Heritage Foundation reports. 

The survey data shows that the total value of exports and imports of goods and services equals 121.7% of GDP. The average applied tariff rate is 0.7%, and 66 nontariff measures are in force.

"Foreign and domestic investments receive equal treatment, but transparency is an issue. With the banking sector growing and modernized, access to financing has improved. The stock exchange is small and underdeveloped," the publication concludes. 

The Heritage Foundation is a research and educational institution whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, and a strong national defense.

The survey divided nations into five major categories: free (80-100), mostly free (70- 79.9), moderately free (60-69.9), mostly unfree (50-59.9) and repressed (0-49.9).

In the 2019 Index of Economic Freedom, Georgia ranked 16th in the world and 8th in Europe, while its economic freedom score was 75.9.

By Ana Dumbadze 

17 March 2020 12:31