> Unveiling Georgia's Economic Potential:
Strengths, Challenges, and Opportunitiess GEORGIA’S ECONOMIC RENAISSANCE Georgia, strategically positioned at the crossroads of Europe and Asia, is undergoing a remarkable economic transformation. From impressive GDP growth to pioneering reforms, the nation is setting itself up as a beacon of opportunity for investors and businesses alike. While Georgia is making headlines across the world, largely as result of its crossroads position, it is also worth looking at the figures. ECONOMIC DRIVERS AND KEY STRENGTHS Georgia’s robust economic performance is underpinned by a dynamic private sector, a skilled workforce, and a strategic geographic location. After Covid, real GDP growth has averaged an impressive 9.8 percent annually, driven by a diverse mix of tourism, exports, and foreign investment. In 2023, the country’s GDP surged to $30.8 billion, a significant rise from $25 billion in 2022. • Tourism: With its rich cultural heritage and stunning landscapes, Georgia attracted 6.2 million international visitors in 2023, generating $4.1 billion in revenue. Investments in worldclass hospitality infrastructure and international brand expansions have further solidified its reputation as a premier tourist destination. • Renewable Energy: Leveraging its abundant hydropower and solar energy resources, Georgia is diversifying its energy mix. The government’s emphasis on renewable energy has opened up substantial investment opportunities, with hydropower projects leading the charge. • Business-Friendly Reforms: Georgia consistently ranks high in global indices for economic freedom and transparency. Reforms to streamline regulations, enhance property rights, and reduce bureaucratic hurdles have fostered a thriving business environment. • Real Estate and Manufacturing: The Fastgrowing real estate market, particularly in Tbilisi, and a growing manufacturing sector spanning industries, are additional pillars of economic strength. STRENGTH IN STABILITY: THE ROLE OF THE NATIONAL BANK OF GEORGIA The National Bank of Georgia (NBG) has been implementing efficient monetary policy and ensures financial stability. By implementing effective monetary policies and timely interest rate adjustments, the NBG has successfully anchored inflation expectations while fostering a conducive environment for business and consumer confidence. Despite global inflationary pressures, Georgia’s inflation rate was brought 132
down from 11.9 percent on average in 2022 to just 2.5 percent in 2023 and 1.1 percent in 2024. Since March, 2023 inflation is maintained well below the 3 percent target—a testament to the NBG’s proactive approach. The bank has also taken significant steps to bolster financial stability. Georgia’s banking sector remains resilient, with adequate liquidity and well-capitalised institutions. Additionally, initiatives like the development of a green bond market highlight the NBG’s commitment to sustainable growth. Georgia’s first corporate green bond issuance in 2022—focused on renewable energy projects—is a prime example of how financial innovation is being leveraged to enhance economic sustainability. Furthermore, the NBG has significant achievements in reducing the vulnerability of the financial sector to foreign currency fluctuations and external shocks. Since 2017, the NBG has implemented robust macroprudential measures to decrease the dependence on foreign currency fluctuations. To that end, the NBG has progressively increased the limits on unhedged foreign currency loans on several occasions. These efforts have considerably reduced the share of foreign currency loans from 80% in the early 2010s to approximately 43% today. Similarly, the share of foreign currency deposits, which stood at comparable levels in the early 2010s, has decreased to 52%. Consequently, Georgia's financial sector has become more resilient to external shocks. The NBG and Georgian financial institutions, as it has been many times underlined by the respective feedbacks and assessments of international partners, act fully in accordance with the financial sanctions imposed on the Russian Federation/Belarus by the United States and other respective parties. Over the last years, the NBG has implemented a comprehensive regulatory and supervisory framework aimed at combating money laundering and terrorism financing (AML/CFT) in Virtual (Crypto) Assets Sector. As a result, in 2024 the Council of Europe’s Committee of Experts on the evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) has positively assessed the measures taken by the National Bank of Georgia to prevent money laundering and terrorism financing (AML/ CFT). This assessment has elevated Georgia’s CFI.co | Capital Finance International
Georgia: Tbilisi
compliance with Recommendation 15 of the Financial Action Task Force (FATF) from “Partially Compliant” to “Largely Compliant”, making it one of only seven MONEYVAL CoE member states to achieve this rating. OPPORTUNITIES ON THE HORIZON As Georgia continues its upward trajectory, it presents a host of opportunities across various sectors. The IT sector, driven by a burgeoning startup ecosystem, is one area ripe for innovation and investment. Similarly, agriculture remains a promising field, with fertile lands and favourable climates enabling a broad range of agricultural activities. Geographically, Georgia’s position as a gateway between Europe and Asia enhances its logistics and trade potential. Investments in modern infrastructure, such as the Baku-Tbilisi-Kars railway, have amplified its role as a transit hub for global commerce. Enhanced trade agreements and partnerships could further unlock Georgia’s export potential. Additionally, a focus on digital trade platforms and e-commerce infrastructure can create new avenues for SMEs to participate in global trade, making Georgia an even more inclusive and diversified economy. TURNING CHALLENGES INTO OPPORTUNITIES Despite these strengths, Georgia faces challenges