Publications

The COVID-19 pandemic, and the ensuing economic shock, has prompted governments all around the globe to act swiftly and decisively to mitigate the health and economic impacts of the crisis. Each country has responded in its own way, and it is useful to look at these different responses to identify good practices. In this issue, we look broadly at countries in Eastern Europe and Central Asia, and present three case studies of Georgia, Moldova, and Serbia respectively, including an analysis of the fiscal measures these countries have taken and an overview of the impacts of the pandemic.
In August 2020, the number of employees receiving salaries recovered almost fully and stood at only 1% less than the corresponding month of last year; During the period of January-August 2020, the month of May saw the largest drop in the number of employees receiving salaries (a dip of 9% or 74 951), compared to the corresponding period of 2019; The month of April experienced the biggest decline in the number of employees for four out of the five higher-income categories, with the highest decline (23%) recorded in the number of people earning more than GEL 4800 per month; The total average monthly earnings of employees in Q2 of 2020 amounted to GEL 1150.1, which represents a 3% decrease compared to Q2 of 2019; According to the data obtained from HR.ge and Jobs.ge, the drop in demand for labor started in March and reached its peak in April, when HR.ge and Jobs.ge experienced an 87% and 78% year over year (YoY) decline in new vacancies posted, respectively. The YoY growth rates started recovering towards the baseline in May, but then registered a significant decline in August.
By the end of the second quarter of 2020, loans and deposits, expressed as a percentage of GDP, increased by 3.6 and 4.9 percentage points, respectively, compared to the beginning of the year; By the end of the second quarter of 2020, bank assets, expressed as a percentage of GDP, increased to 98.4%; By the end of July of 2020, the volume of loans was increased by 19%, compared to July of 2019; The average interest rates on loans in January-July of 2020 denominated in national currencies were 0.9 percentage points higher than in January-July of 2019, while the average interest rates on loans denominated in foreign currencies were 0.8 percentage points less; By the end of July of 2020, the volume of deposits in Georgia was increased by 21%, compared to July of 2019; The average interest rates on deposits in January-July of 2020 denominated in national currencies were 1.2 percentage points higher than in January-July of 2019, while the average interest rates on deposits denominated in foreign currencies were 0.4 percentage points less; In January-July of 2020 trade had the highest share of total loans with 29.5%; In January-July of 2020, share of construction in total loans increased by 3.6 percentage points, while share of financial intermediation decreased by 8.2 percentage points, compared to the corresponding period of 2019; According to the World Bank, Georgia’s ratio of non-performing loans to total loans decreased in 2019, compared to 2018, by 0.8 percentage points and dropped to 1.9%; By the end of July of 2020 the rates of dollarization on loans and deposits were increased by 0.3 and 8 percentage points, compared to the corresponding period of 2019. The rates rose to 56.9% and 61.3%, respectively.
In the first half of 2020, external trade turnover in Georgia amounted to 5.054 bln USD, which is 18% less than corresponding period of 2019; Georgian exports amounted to 1.5 bln in January-June 2020, which is 16% less than in January-June of 2019. Moreover, Georgian imports deteriorated even more by reaching 3.5 bln USD, which is 19% less than in the first half of 2019; In the first half of 2020, Georgian trade deficit decreased by 0.55 bln USD (21%), compared to the first half of 2019; There are more EU member states amongst Georgia’s top 10 export partners in the first half of 2020, compared to the first half of 2019; In the period of January-June 2020, total trade turnover with the EU and Russia decreased by 22% and 16% respectively, but increased with China by 10% compared to the corresponding period of last year; Georgia’s main trading partners in the first half of 2020 were Turkey, Russia and China. Their shares in Georgia’s total trade turnover were 14%, 12% and 10% respectively; 77.4% of Georgian exports are concentrated amongst the top ten partners. Moreover, top ten import partners occupy 69.4% of total imports.
Due to the COVID-19 pandemic, global remittance flows are expected to fall by 20% in 2020 (World Bank), while the decrease in Georgia is forecast at 15% (IMF); In the first half of 2020, remittances have declined by just 4.8% compared to the same period of 2019; Remittance inflows have been growing by an average of 8.5% over the past decade; The contribution of remittance inflows in GDP has increased significantly over time and amounted 11% on average for the period of 2015-2019; In 2020, remittance inflows saw a sharp drop (-42.3%) in April, however, the recovery in June was also strong (17.8%), compared to the same period of 2019; Remittances from Russia declined the most in the first half of 2020 compared to the first half of 2019 (-27%), while Italy recorded the strongest growth (14%).
Due to the COVID-19 pandemic, global FDI is expected to fall by 30-40% in 2020 (UNCTAD), while the decrease in Georgia is forecast at 19% (IMF); Net FDI inflows have been decreasing in Georgia since 2017, based on both, yearly and Q1 data; Net FDI inflows in Georgia experience volatility over time, due to large one-off investment projects; Georgia has been leading among EaP countries in terms of the share of FDI in GDP in 2017 and 2018; Net FDI inflows decreased by 41.7% in Q1 of 2020, compared to Q1 in 2019, mainly due to COVID-19 pandemic.
Unemployment has remained one of the prioritised issues in Georgian economy since its independence. Moreover, Georgian economy was characterised with high unemployment rates even during periods of economic upturn prior to 2008 global financial crisis. COVID-19 is likely to impact job market and income of people employed, therefore, it is important to consider their pre-pandemic state. This bulletin overviews the unemployment and income figures of 2016-2019. The period of 2016-2019 is characterised with significant trends and issues such as: • Growth in average monthly incomes;• Slight decrease in unemployment rate;• Increased share of hired individuals in labor force;• Slight decrease of share of self-employed individuals in labor force.
PMC Research forecasts that budget deficit as a % of GDP will increase from 3.1% to 9.8% in the optimistic scenario, while in the less pessimistic and very pessimistic scenarios it will amount to 11.2% and 14.1%, respec­tively.                                         Recommendations: Planned budget spending should be reprioritized to provide space for COVID-19-related expenditure; Fiscal measures should be targeted to assist the hardest-hit households and firms. The government should ignore lobbying pressure from different sectors and businesses seeking benefit from fiscal policy package; Effective public financial management is key to safeguarding against fiscal risks and enhancing the Government’s capacity to respond to the crisis.
If the optimistic scenario proves true, Georgia’s real economy is expected to shrink by 4.3%. The Georgian economy is expected to decrease by 8% in case of less pessimistic scenario, while in the event of the very pessimistic scenario, the expected fall is 12.9%.  In the optimistic scenario, Georgia’s real GDP growth is expected to drop by 0.43% every week, while the weekly loss is more pronounced for the less pessimistic (-0.47%) and very pessimistic (-0.5%) scenarios respectively. The experiences of some European countries should be taken into account in the process of phased lifting of the restrictive measures.
The data analysis shows that in 2019, compared with the previous year, Georgia’s export has increased, while the country’s import decreased. In 2019, Georgia’s external trade balance amounted to negative $5.2 bln, which is a $0.49 bln decrease compared to the corresponding period of 2018.