2006 Georgia‘s economy problems survey and 2007 prognoses

FROM THE REDACTION

The economy of Georgia basically faced positive tendencies during the recent year, but was accompanied with several sort of problems.

Let’s take advantage with main problems, including the first one —high- level inflation. The causes were: energy products prices increase, especially on petroleum and electricity, housing prices record hit, consumer prices world market climb, what based for local agriculture producing reduce. Serious amount of given currency increase, related to income growth, and raise of consumer, mortgage and other sort of credit volumes (chart.1).

Within the issue GEL currency kept solid against USD most of all during recent six years period of time. (just against USD and no against other currency), what brought hardships for living money transferees in USD from abroad, the transferred money included approximately USD 550 million, so evidence is 10 GEL lose on each 100 USD by the consumers (chart.2).

According to Treasury Fund Representative, Robert Christenson, Georgia faced its best during 2006 concerning macro economic highlight. First of all he underlined GDP growth official highlights (chart.3)

He told about budgetary incomes satisfactory level and made reference of inflation condition hardships. He underlined the world practice dates concerning 6 per cent preferable inflation level, but if the level jumps higher, it makes hindrance economy development and creates into most serious problem. R Christenson noted, that Georgian economy main problem during 2006 –2007 was current account deficits (chart.4) and outlined unrealness of official dates highlight (chart.9), because car export is not gross export in reality and automatic car –building production. Scrip-ion and flight apparatus issues do not point to export production development, he told.
Direct investition volume climb up at the same time (chart.5), what is hugely important for production and employment.
Direct investition volume climbs up at the same time, what bears absolutely huge importance for manufactory and employment generation. But it has its second side, it assists GEL solid and giving its big amount into currency, what is one of he main causes of inflation. So, 2007, the period, when investition boom is expected, approximately including 1,8 billion USD, needs care handle. That will remain as basic problem, despite of prices jump on gas and petroleum, he told. While his speech deliver at Tbilisi State University, he told about suggestion for the government, of no sort intervention making on the monetary market and giving out GEL, which will create more solid after all and loss interest of the investors. So, the government passes most clever, complex politics, he told, using several gears at the same time:
1 ) Budgetary deficit reduction of entire GDP 25 percent level (chart.6)
2 ) The National bank will sell more depository certificate
3 ) GEL will face a little more solid
That will bring possibility for the government make managing inflation processes and give the country possibility of big amount direct investitions receiving.
The second problematic issue was unemployment level increase. The recent year’s tendency kept continue and governmental sector employees ‘number came up to repeated reduction, in addition with private sector and season employees’number reduce.
But in the case of officially registrant unemployed number survey, it reduced to 46,9 thousand in 2004 up from 303 thousand in 2002, 29,8 thousand in 2005 and 21 thousand in 2006. According to the official statistic, the employment number reduced up to 1.7 million in 2006, 1 744 000 in 2005, up from one million eight hundred-forty thousand in 2004 (chart.7).
Export low level and trade balance deficit remains as a problem still (chart.8). Import included USD 3 681 200 000 and export USD 993 million in 2006. The deficit number included USD 2.688 billion, what is USD one million higher then 2005 highlight, and export cover of import coefficient included 27%.
Export leading production remains black metal scrap- iron, colored metal scrap –iron, nuts, fertilization, alcohol drinks, ore and slag. (chart.9-10)
We do think, there is scrip-iron and export relative sort not able to be considered as our exported material. For instance, plural pearls, gold monet, road transport, expect railway and tram vehicles.
As a conclusion, it can be told that existed dates correction with 116 million should take place for real export volume – USD 877 million receiving. The market geography has not faced serious changes (chart.13), main export comes on CIS and EU – including just 877 million, what is 23 million higher highlight then we had in the recent year.
Complete interior product volume increase faces positive. Live – stock GDP increase estimated as positive also (chart.11, table.1). We come closer to middle profitable countries’number with the highlight, but the internal debt keeps unchanged.
Foreign debt equalness with GDP coefficient faced improvement (table.2).
Invesitions number growth highlight bears huge importance (table.3, chart.5), what will guarantee GEL currency stabile and keeping its same condition.
The highlight is GEL currency solid guarantee and rate of exchange same way keeping condition. The highlight will include just USD 10 billion and GEL’s today currency be kept with 5 per cent equality up till the end of the year.
The very important is bank –finance sector and re-producing manufactory level increase, trade issue and housing temp raise, which faced 14 per cent high level comparing with the recent year.
Healthcare and education expenses importantly grow and the sector needs financing increase maintain.
Inflation high level will be kept during 2007, basically related to prices increase on energy sector, healthcare and consumer commodity. But employees’ number shows raise, wage middle highlight will be increased with 16 %, concerning investing boom.
Economy growth temp level keeping will include 8,5 %, according to local prognoses and 5,5% level, according to the World Bank prognoses.
GDP basically came on producing and trade growth trend, during 2006. Based on the condition Georgia will be able employment number increase with 4-6% and economy growth temp keeping in conjunction with treasury rate of exchange with 5-6% error.
Entire Gross Domestic Product volume in 2006, included USD 2500 on each live – stock, according to preliminary calculations, what is four times more then in 2002.