EXPORT GROWTH, WEAK DOMESTIC DEMAND REDUCE GEORGIA’S EXTERNAL DEFICITS.

After growing rapidly during 1995-1998, Georgia’s trade and current account deficits have fallen sharply over the past eighteen months. According to state statistical office data, the republic ran a US$144 million trade deficit in the first half of 2000, which is 25 percent below the deficit reported as of mid-1999. This follows an even greater decline during 1999 as a whole, when the trade deficit dropped to US$347 million (12 percent of GDP) from US$859 million (25 percent of GDP) in 1998. Although balance-of-payments data have yet to be released for 2000, the trade figures suggest that the current account deficit has also fallen sharply. In 1999, the current account deficit fell from US$389 million (11 percent of GDP) to US$220 million (8 percent of GDP).

Rapid export growth has been the key to reducing Georgia’s external deficits. The state statistical office reports that exports in the first half of 2000 surged 64 percent to US$153 million, after growing 26 percent to US$238 million in 1999. A strong recovery in Russian demand for Georgian wines and foodstuffs which began in the second half of last year explains a part of Georgia’s export growth. Growing sales to Russia helped Georgian exports to other CIS countries rise 32 percent in the first half of 2000. But as was the case in 1999, Georgia’s export growth this year is driven primarily by sales to non-CIS countries, which now account for almost 60 percent of total exports. After rising 60 percent in 1990, Georgia’s non-CIS exports nearly doubled in the first half of 2000, due largely to growing exports of scrap metal to Turkey and Germany.

Georgia’s imports grew by only 3 percent during the first half of 2000. In the wake of 1999’s 44 percent drop in imports, this is an extremely weak recovery. Domestic spending, particularly for investment, fell sharply in 1999 as inflows of direct foreign investment dropped by half following the completion of the Georgian portion of the Baku-Supsa pipeline project early last year. Investment spending in the first quarter of 2000 was some 70 percent below its level of the first quarter of 1999. As a result, imports of capital goods and construction materials plummeted. Although personal consumption seems to be growing this year–retail trade turnover increased some 10 percent in the first quarter–this spending does not appear to have triggered strong import growth. Higher duties on imported automobiles (which were raised from 5 to 40 percent in late 1999) seem to have reduced car imports. With IMF and World Bank lending still on hold, and likely to remain so until the end of this year, Georgia’s financing constraints will continue to dampen import growth over the remainder of this year. But the country’s external balances appear likely to continue to improve.

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