Economy

Georgia's economy has traditionally revolved around Black Sea tourism, cultivation of citrus fruits, tea and grapes; mining of manganese and copper; and output of a small industrial sector producing wine, metals, machinery, chemicals, and textiles. The country imports the bulk of its energy needs, including natural gas and oil products. Its only sizable internal energy resource is hydropower.

Despite the severe damage the economy has suffered due to civil strife, Georgia, with the help of the IMF and World Bank, made substantial economic gains since 1995, increasing GDP growth and slashing inflation. The Georgian economy continues to experience large budget deficits due to a failure to collect tax revenues. Georgia also still suffers from energy shortages; it privatised the distribution network in 1998, and deliveries are steadily improving. Georgia is pinning its hopes for long-term recovery on the development of an international transportation corridor through the key Black Sea ports of P'ot'i and Batumi.

Economy - In Depth

For much of the 20th century, Georgia's economy was within the Soviet model of command economy.

Since the fall of the USSR in 1991, Georgia embarked on a major structural reform designed to transition to a free market economy. However, as all other post-Soviet states, Georgia faced a severe economic collapse. The civil war and military conflicts in South Ossetia and Abkhazia aggravated the crisis.The agriculture and industry output diminished. By 1994 the gross domestic product had shrunk to a quarter of that of 1989.

The first financial help from the West came in 1995, when the World Bank and International Monetary Fund granted Georgia a credit of USD 206 million and Germany granted DM 50 million.

As of 2001 54% of the population lived below the national poverty line but by 2006 poverty decreased to 34%. In 2005 average monthly income of a household was GEL 347 (about US$200).

Since the early 2000s, visible positive developments have been observed in the economy of Georgia. In 2006, Georgia's real GDP growth rate reached 8.8%, making Georgia one of the fastest growing economies in Eastern Europe. The World Bank dubbed Georgia "the number one economic reformer in the world" because it has in one year improved from rank 112th to 37th in terms of ease of doing business. However, the country has high unemployment rate of 12.6% and has fairly low median income compared to other European countries.

2006 estimates place Georgia's GDP (adjusted for purchasing power parity) at US$17.88 billion. Georgia's economy is becoming more dependent on services (now representing 54.8% of GDP), moving away from agricultural sector (17.7%).

The 2006 ban on imports of Georgian wine to Russia, one of Georgia's biggest trading partners, and break of financial links was described by the IMF Mission as an "external shock", In addition, Russia increased the price of gas for Georgia. This was followed by the spike in the Georgian lari's rate of inflation. The National Bank of Georgia stated that the inflation was mainly triggered by external reasons, including Russia's economic embargo. The Georgian authorities expected that the current account deficit the embargo would cause in 2007 would be financed by "higher foreign exchange proceeds generated by the large inflow of foreign direct investment" and an increase in tourist revenues. The country has also maintained a solid credit in international market securities.

Georgia is becoming more integrated into the global trading network: its 2006 imports and exports account for 10% and 18% of GDP respectively. Georgia's main imports are natural gas, oil products, machinery and parts, and transport equipment, whilst its main exports are scrap metal, machinery, chemicals; fuel re-exports; citrus fruits, tea and wine. Its major import partners in 2006 were Russia (17%), Turkey (12.3%), US (7.9%), Azerbaijan (7.8%), Ukraine (7.4%), Germany (7.1%) and Italy (4.9%), whilst is main export partners were the UK (21.5%), Turkey (16.9%), US (5.8%), Spain (5.8%), Azerbaijan (5.6%), Turkmenistan (5.1%).

In 2004, a 12% flat income tax was introduced in Georgia. Tax collection increased significantly, thereby reducing the government's formerly large budget deficits.

Experts estimate that Georgia has in the past few years significantly reduced corruption, and Transparency International moved Georgia from the 130th to 99th position in the world in its 2006 Corruption Perceptions Index (with number 1 being considered the least corrupt nation).