The Possible Effect Of The Greek Crisis On The Georgian Economy

10 August 2015

The Greek economic crisis will impact the economic stability of other countries, including Georgia, which has a specific connection on the Greek economy. Greece is the second largest recipient of Georgian migrants looking for work, behind only Russia. While there are no official statistics on Georgian migrants by country, according to unofficial information, approximately 200,000 Georgians live in Greece. The income they send home is a substantial financial source for their families back in Georgia. Before 2015, there was a positive trend of remittances from Greece. However, in the first five months of 2015, remittances from Greece declined by 18% (Chart 1). At the same time, remittances from Russia declined by 23% (120 million dollars). Chart 1. Remittances from Greece to Georgia image001 Source: National bank of Georgia Georgia does not receive significant foreign direct investment (FDI) from Greece, and does not significant exports to the Greek market. However, the EU is one of the biggest investors and trade partners for the Georgia (Chart 2). For example, in 2014, half of FDI was from the EU, and exports to the EU were 22% of total Georgian exports. Therefore, the threat to the EU economy from the Greek crisis also contains a great risk for the Georgian economy. Chart 2. FDI from EU and Georgian product export, in millions of dollars image002 Source: National Statistics Office of Georgia The Greek crisis coincides with a difficult time for the Georgian economy. In the last seven months, Georgia’s national currency, the Lari (GEL), depreciated 29% compared to the U.S. dollar. The economic growth rate diminished to 2.5%. The government cut the 2015 annual economic growth forecast from 5%, down to 2%. Inflation is growing: By the end of June 2015, the annual inflation reached 4.5%. In the first five months of 2015, Georgian exports diminished by 25%, and in the first quarter, FDI declined by 39%. The worsened economic situation impacted the state budget revenue, as the tax revenue forecast declined by 3% (200 million GEL) and the government had to change the state budget law. The changes in the state budget are currently under discussion in parliament. In this situation, the Georgian economy is especially sensitive to external shocks. Opinion polls show that people perceive that the country’s number one problem is unemployment. In 2014, the unemployment rate declined by 2.2%, and officially, 265,000 people are unemployed. However, more than one million of those who are ‘employed’ are actually self-employed; most of them live in rural areas earning very little, and want instead to have an official workplace. If the Georgian emigrants in Greece have to return to Georgia, it would be an even greater social burden for the country. Greek banks have been closed over the past week, and Georgian emigrants in Greece can’t send money back, meaning that thousands of Georgian families are left without any kind of income. image003