Foreign direct investments (FDI) in Georgia declined by 12.3 percent year-on-year to $366.4 million in the first half of 2021 in a sign of investors’ reluctance to spend funds in the period of the coronavirus pandemic.
Georgia’s highly tourism-reliant economy has been hit especially hard by the COVID crisis and lacks the resource-extraction or manufacturing base that has helped cushion the blow in some other ex-Soviet countries. FDI is an important source of economic growth in the South Caucasus country of 3.7 million.
The country started its economic recovery in April when it recorded 44.8 percent year-on-year growth. Economic recovery continued to gather pace since then as pandemic restrictions eased.
Gross domestic product (GDP) grew by 12.2 percent year-on-year in January-July after contracting 5.8 percent in the same period last year. In July alone, the economy expanded by 9.9 percent, compared with a 5.5 percent contraction a year ago. Growth was recorded in all sectors of the economy except for the mining industry and construction.
The country brought some restrictions back in August amid a hike in the number of infections and fatalities.
FDI declined to $234.2 million in the second quarter of this year from $240.3 million in the same quarter of 2020, but up from $125.4 million in the first quarter of 2021, the country’s National Statistics Office said.
“The main reason (for the decline) is transferring of ownership from a non-resident to the resident units in several companies and repayment of debt obligations,” the office said.
The United Kingdom leads the list of investors in January-June with $165.5 million, followed by Turkey ($50.8 million) and the Czech Republic ($44.9 million).
The amount of FDI in Georgia was $616.9 million in 2020.
Despite the continued decline in FDI, Georgia revised its economic growth forecast to 7.7 percent from a previous projection of 4.3 percent in 2021 amid signs of economic recovery and in line with the International Monetary Fund’s (IMF) current projection.
The IMF said last month that Georgia’s GDP was now projected to grow 7.7 percent in 2021 and 5.8 percent in 2022, but slow vaccination and political uncertainty could slow down the country’s economic recovery.
The Fund said that new COVID-19 variants or vaccination delays could derail the recovery by requiring new lockdowns and reducing external demand, underscoring the paramount importance of controlling the pandemic.
The IMF added that renewed political uncertainty amid protests against the government could increase lari volatility and undermine investment and confidence.
The World Bank said in June that Georgia’s economy was projected to recover in 2021, growing by 6 percent, with the key baseline assumption that there would be no further severe waves of the COVID-19 infections and that the country’s political impasse would be resolved. The recovery will be supported by fiscal stimulus in the form of accelerated capital spending, tax deferrals, accelerated VAT refunds, and targeted support for the most affected businesses, as well as higher social spending.
Under a baseline scenario in which no third wave of infections materialises and a significant share of the population is vaccinated by 2022, economic growth could recover to 5.0 percent in 2022 and 2023.
Last month, Fitch Ratings revised the outlook on Georgia’s long-term foreign-currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘BB’.