Georgia’s Journey in a Pandemic-Paused World

About one year ago, I arrived in Tbilisi to take up my post as World Bank Regional Director for the South Caucasus. I arrived in a country that had embarked on a remarkable journey from “star reformer to star performer”. Indeed, over the last decade, Georgia has made substantial strides in improving the lives of its people: it has nearly halved poverty, maintained steady economic growth, created an open business environment, tackled corruption and governance issues, and attracted above-average levels of FDI. Georgia’s steady and consistent reform efforts have not gone unnoticed; it is often ranked among the world’s top reformers on many international ratings. To mark my one-year anniversary in the job, I had initially wanted to pen my reflections on Georgia’s journey to becoming a star performer, but then the pandemic occurred and so my original storyline had to be put on hold. Or so I thought.

Indeed, what started with rumors about an unidentified respiratory virus in a faraway province in China quickly turned into a global pandemic that we now call COVID-19. And today, with over ten million infections and half a million deaths, the COVID-19 pandemic has had a major impact on us all: global growth under our baseline scenario will likely contract by about 5%, while the downside scenario presents a global growth contraction of 8% in 2020, effectively putting the world on pace for the deepest recession since WWII. Under these same scenarios, we estimate that COVID-19 will push between 71 million and 100 million people into extreme poverty, effectively wiping out years of gains in our shared fight against poverty. I am heartbroken.

In the months following the declaration of the global pandemic, we saw countries respond in different ways and at different speeds. Each implemented their own combination of policy actions aimed at slowing the spread of the virus and providing targeted actions in support of people, livelihoods, and the economy. The results have been mixed; and clearly showed that although everyone is fighting the same virus, the cost of this fight would certainly not be the same for all. So, how has Georgia been impacted and how has it fared to date?

The bad news first. Given the global nature of this pandemic and the country’s reliance on trade (77% of GDP), tourism (19% of GDP), and remittance flows (more than 10% of GDP), we project Georgia’s GDP will decline by 4.8% in 2020, and possibly up to 9% under a downside scenario. Poverty levels, too, will be negatively impacted, as around 500,000 Georgians are at risk of downward mobility in 2020, including 200,000 previously non-poor that will be impoverished. This scenario implies a poverty impact of 2.8 percentage points in 2020, driving the poverty rate up to 16.1%.

The good news, on the other hand: Georgia has followed the same approach that led it to becoming a star performer and has therefore averted the adverse health outcomes experienced by other countries, with only 930 infections and 15 deaths as of July 1. The country’s rapid response included: 1) acting early to implement evidence-based policy actions, including closing its borders, moving to online schooling, and introducing quarantine/social distancing measures; 2) strengthening institutions, capacity, and communications, such as in the health sector and in testing/tracing capacity; and 3) introducing targeted social support and “relief & recovery” efforts, in particular to households and the private sector. And, the government did so in strong partnership with its development partners, including the World Bank as a key “first responder.”

The World Bank is responding with a mix of advisory, convening, and financial services. On the advisory side, we have shared “good practices” from across the world with the government to allow for better evidence-based policy-making, and we have provided hands-on procurement support. On the convening side, we have helped facilitate policy dialogue across the region, both importing and, importantly, exporting early success stories and lessons learned. On the financial services side, when everything is said and done, we expect to provide over $300m in financial support to Georgia, concretely:

• A “first response” project of $80 million under the World Bank’s Fast Track COVID-19 Facility to mitigate the health and social impacts of the pandemic, protect the poorest and most vulnerable, and support workers who have lost their jobs due to the crisis. The Ministry of Health has since procured vital medical equipment, including over 250,000 PCR and 147,000 Rapid Test Kits, effectively tripling Georgia’s testing capacity to over 3,000 tests administered daily.

• Another $50 million in additional financing for the Economic Management and Competitiveness Development Policy Operation which, coupled with the original loan of $50 million, provides $100 million in budget support to the government amidst a sharp decline in tax revenues and an unanticipated increase in expenditures to cover anti-crisis measures.

• A $100 million “Relief and Recovery for Micro, Small and Medium-Sized Enterprises (MSMEs) and Jobs” project, currently under preparation, which will support the jobs agenda, as well as MSMEs that have been negatively impacted by the pandemic.

• Finally, the World Bank is preparing additional COVID-19 support projects, such as the $35 million “Log-In Georgia” project to help increase access of some 700 rural villages to affordable broadband internet, and to promote key use cases such as remote learning, telemedicine, digital financial inclusion, and e-commerce - all in support of government efforts to support the people of Georgia.

And finally, I want to return to where I started, and confirm that what I’ve seen of Georgia throughout this year leaves me with no doubt that despite the global pandemic and its knock-on effects, Georgia’s story does not pause, let alone stop here. Georgia, I am sure, will “build back better,” using this opportunity to transition to a new digital economy, reposition itself as a key logistics hub between Europe and Asia as global supply chains fracture, and to embrace a “green economic rebuild.” I am confident that, in a year from now, I will be writing about a new Georgian economic re-launch, built on an even stronger foundation of resilience, sustainability, and growth.

First printed in The Economist Georgia

By Sebastian Molineus, World Bank Regional Director for the South Caucasus