ISET

In an interview with the “Commersant” newspaper, Giorgi Mzhavanadze, a researcher at the ISET Policy Institute, said that the annual consumer price inflation would exceed the target of 4% in 2016.

According to the National Statistics Office, consumer price inflation was 3.9% YoY in January 2017. Giorgi explained that the main drivers of inflation were alcoholic beverages and tobacco (+18.9% YoY) and transport (+10.8% YoY). Taken together, these categories contributed 2.49 percentage points to annual inflation. According to Giorgi, this increase is a direct effect of the recent hike in excise tax on tobacco, fuel and car imports.

In answer to the question “Why did the National Bank of Georgia not estimate the effect of excise tax on prices correctly, and why was the inflation targetset to 4%?” Giorgi explained that the NBG estimated inflation target was dated back to several years ago, and from 2018 the inflation target will be 3% which is optimal for Georgian economy. The NBG’s monetary policy depends on current and expected economic processes, as well as government decisions (which are exogenous). Giorgi said that it is impossible to predict and react to any fiscal policy before it is known.

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President of ISET Eric Livny gave an interview to the “Business Contract” programme regarding the government's “larization” programme. Although he listed numerous positive and negative sides of the initiative, Mr. Livny does not expect the programme to affect economic growth in Georgia.

“Larisation” is an important economic and social project, but as it involves the banking sector, Eric Livny stressed that the Georgian government and the National Bank of Georgia should treat the process with caution. Over the next few months, Mr. Livny expects the GEL to gain in value, and so believes that imposing restrictions on business transactions is not a good idea; the banks, as well as the population, should be able to make a choice in favor of the currency they prefer.

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Foreign Direct Investment is one of the most important sources of financial investments for developing countries like Georgia. FDI can be considered as the major source of the foreign currency inflows, together with exports and remittances. Therefore, creating an attractive environment for investments is one of the priorities of the Georgian government. ISET-PI researcher Davit Keshelava answered Europe for Georgia’s questions about the main threats and opportunities for improving the country's business environment.

Davit claims that there are several factors that make Georgia an unattractive country for investors. Firstly, Georgia can be considered a small market with only nearly 3.7 million population; in addition, macroeconomic instability - and especially exchange rate fluctuations - creates further uncertainty for foreign investors. Thirdly, an underdeveloped capital market and high interest rates create a problem of financial excess, while a lack of qualified workers also generates problems for businesses. Furthermore, Davit stated that DCFTA might be good instrument to accelerate FDI inflows, if there is bilateral or tripartite agreements between companies operating in different countries.

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According to the National Statistics Office’s estimates, economic growth stood at 1.5% YoY in September 2016. Real Gross Domestic Product increased by 2.6% in the first nine months of 2016 compared to the same period of previous year; at the same time, the state budget for 2016 was planned based on 3% YoY economic growth.

Giorgi Mzhavanadze answered the following questions for eugeoriga.info: is it possible for Georgia to reach a projected growth rate of real GDP in the last quarter of 2016 considering internal and external factors? Does it create problems for budget execution? What are the potential effects of external and internal factors on country’s economic growth?

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On October 20th 2016, representatives of the APRC presented the final results of its study on Livestock Farm-Enterprise Models in the Kakheti Region. The presentation was the final part of a study which stated in June 2016, the goal of which being to show successful models with potential to be replicated, and to contribute to market-oriented production of cattle and pigs in the region. The analyzed and documented models should open perspectives to local entrepreneurs in engaging in pre-industrial production, as well as the processing and trade of milk, beef and pork. The study also presents options in overcoming resource-limited small-scale farming.

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Low oil prices are, of course, a boon for oil importing countries, such as Georgia. In fact, Georgia has already seen a significant decline in its transportation costs (in which the cost of fuel is a very large component). At the same time, Georgia is adversely affected by weaker demand for its products on the Azerbaijani market. Click here to read the full report.