As Georgia struggles to overcome various social and economic problems, pensions remain among the country’s central issues.
For many years, Georgia’s pension system had comprised only a state pension based on a solidarity principle. However, the state pension had not been sufficient to allow retired persons to maintain acceptable living standards. Therefore, pension system reform was a topic of hot discussion for a long time in Georgia and pertinently, in 2018, a funded pension scheme was integrated into the pension system.
The following bulletin will review the key changes that have taken place in the pension system over the last five years.
PMC RC stands firmly with Ukraine, supports its sovereignty and territorial integrity, and condemns Russia’s ongoing military aggression. While the most devastating outcome of this war is the humanitarian catastrophe in Ukraine and the destroyed lives of people, it is also essential to discuss the consequences of this war on the global economy.
Georgia lacks its own production and is highly dependent on imports of essential food and energy goods. Considering Russia and Ukraine are prominent players in the global trade of food and agricultural products, while Russia is one of the world’s largest exporters of energy products, in this bulletin, we discuss threats to the food and energy security of Georgia amid Russia-Ukraine War.
In recent years strengthening vocational education and training (VET) has been among the top priorities of Georgia’s education strategy. In the process, several important reforms have been undertaken including the establishment of the “Vocational Skills Agency”, with the primary goal of increasing private sector participation in VET, and amendments to the rules regarding the authorization of VET institutions, which are widely believed to improve the quality of education. Moreover, specific goals were set under the “2021-2025 Vocational Education Strategy” such as increasing the number of VET students to support the country’s socio-economic development, ensuring their competitiveness by developing professional and general skills, and providing lifelong educational opportunities. The following bulletin discusses the trends of development in VET in Georgia over the last five years.
Socio-economic problems remain significantly challenging for Georgia. Specifically, in 2020, 21.3% of the Georgian population fell under the absolute poverty line. To support the most vulnerable within society, states ordinarily provide diverse social assistance, sometimes including subsistence allowance.
In Georgia, the subsistence allowance program provides financial aid to the country’s poorest families, which is determined by the Social Service Agency rating system. The lower a family’s rating, the poorer their financial position. Recent studies have however indicated that the program does not help beneficiaries to get out of poverty and instead encourages them to maintain a low income in order to receive the allowance. Moreover, the Georgian government plans to significantly reform the program in the nearest future. According to the planned reform, instead of providing money directly, families will be given job opportunities to improve their financial positions. Before changes are made within the program, we take a closer look at the dynamics and structure of the population to have been receiving the subsistence allowance over the last five years.
In recent years, the number of international students has been increasing worldwide. For instance, according to UNESCO data from 2015 to 2019, the number of international students increased from 4.8 million to 6.1 million. Moreover, studies have illustrated that international students, directly and indirectly, contribute to the host countries’ economies through tuition fees, living costs, transportation, travel, and other aspects. In this issue, we overview the dynamics of foreign students in Georgia and their financial contribution to the country’s educational sector.
The global economic recovery is ongoing, however the COVID-19 pandemic is still causing considerable volatility. Since the beginning of 2021, inflation rates have increased in both advanced and emerging economies, generally driven by pandemic-related supply-demand mismatches and rapidly rising commodity prices, following a global decline in inflation over the course of 2020. According to the latest forecasts, for most countries upward price pressures are expected to subside with a return to pre-pandemic levels by mid-2022. With this in mind, it is pertinent to compare the inflationary trends of Georgia with global patterns.
In Georgia, the year-over-year (YoY) Consumer Price Index (CPI), which measures the average price of goods and services acquired by consumers compared to the reference period, has proved relatively similar to global trends, as in December 2020 the inflation rate showed a significant decline of 4.6 percentage points compared to December 2019, reaching 2.4%, major decrease (25.4 pp) in prices coming from “housing, water, electricity, gas and other fuels” category, which can be explained by the introduction of utility subsidies for households from November 2020 and plummeting global oil prices in the middle of 2020. This figure was still higher than the lowest figure of the reporting period which was recorded in December 2018 (1.5%). Since the beginning of 2021, monthly YoY CPI inflation has been increasing sharply, surpassing pre-pandemic levels, and reaching its peak to date of 12.8% in October 2021 with a 10 pp increase from the beginning of the year.
On the contrary, YoY monthly core inflation increased in the middle of 2020, reaching 6.6% in June 2020 (with significant increases in prices of routine household maintenance, healthcare, and restaurants and hotels) and this has continued to be relatively stable with a monthly average value of 5.8% over the 2020-2021 period, while the pre-pandemic (2017-2019) monthly average was equal to 3.1%. The magnitude of the fluctuations was significantly lower in the case of core inflation compared to CPI inflation, which could be explained by the fact that the most significant price variations have tended to come under the food and energy categories.
For developing countries, attracting FDI has great potential to serve as a tool to achieve higher economic growth through reducing unemployment, increasing exports, boosting productivity, and improving capital inflows. During the last two decades, Georgia has adopted many reforms to eliminate obstacles in the way of doing business and to attract foreign investors. As a result, Georgia became one of the best performers in the world according to international indices on doing business and openness to investments, and recorded substantial growth in FDI, especially in the period of 2014-2017. However, those reforms have not been sufficient to ensure a prolonged steady inflow of FDI nor have they maximized the potential gains from foreign investment.
Poverty alleviation remains one of the biggest challenges for the world, including Georgia. Methods applied to determine the poverty rate vary from country to country, so in order to gain a broad understanding of the current situation regarding poverty in Georgia at the international level, it is important to take into account a variety of indicators. In 2020, GDP per capita in Georgia amounted to 4279 USD, ranking it 122nd in the world and 3rd among Eastern Partnership (EaP) countries. Meanwhile, the Human Capital Index (HCI) calculates the contributions of health and education to worker productivity with Georgia scoring 0.57 in 2020, ranking 85th out of 174 countries world and having the lowest score among EaP countries.Multidimensional poverty encompasses various forms of deprivation experienced by poor people such as poor health, lack of education, inadequate living standards, poor quality of work and the threat of violence. In 2019, 3.8% of the population in Georgia was multidimensionally poor, ranking 57th out of 120 countries in the world and first among EaP countries. The Gini Index measures income distribution within a society. In 2021, Georgia scored 36.4 on the Gini Index, ranking 76th out of 165 countries and having the highest inequality rate among EaP countries. In terms of life expectancy, in 2020 average life expectancy in Georgia was 74.2 years, ranking it 101st in the world and 3rd among EaP countries. Taking into account these indicators, Georgia, on an international level, is an upper-middle-income country with moderate rates of inequality and life expectancy. Due to its poor educational and healthcare systems, Georgia has been unable to mobilize its human capital to achieve a higher level of economic development.
In the first half of 2021, external trade turnover in Georgia amounted to 6.2 bln USD, which is 20.7% more than corresponding period of 2020 and 0.5% more than the prepandemic period of January-June 2019.
Georgian exports amounted to 1.9 bln in January-June 2021, which is 25.2% more than in January-June of 2020 and 5.3% more than in January-June of 2019. Moreover, Georgian imports recorded 4.3 bln USD, which is 18.9% more than in the first half of 2020 and 1.5% less than in the corresponding period of 2019.
In the first half of 2021 Georgian trade deficit increased by 0.3 bln USD (14.5%), compared to the first half of 2020, and decreased by 0.16 bln USD (6.1%), compared to the corresponding period of 2019 and amounted to 2.44 bln USD.
In the period of January-June 2021, compared to January-June of 2020, trade turnover increased with the EU (9.9%), Russia (24.8%) and China (22.7%). However, compared to the corresponding period of 2019, trade turnover increased with Russia (12.3%) and China (27.9%), but decreased with the EU (-14%).
Georgia’s main total trade partners in the first half of 2021 were Turkey (15.2%), Russia (11.8%) and China (10.5%). Main export partners were China (15.4%), Russia (14%) and Azerbaijan (8.4%). Moreover, main import partners were Turkey (18%), Russia (10.8%) and China (8.4%).
In 2021, unemployment remains an unresolved obstacle for the Georgian economy and society’s most pressing problem. Over the years, diverse public opinion polls have indicated that unemployment is the most important issue at national level. For instance, in 2020, according to a public attitudes poll conducted by the National Democratic Institute, for 46% of respondents, the main challenge they were facing was unemployment.This issue focuses on changes in unemployment trends in Georgia in the period of 2017-2020 and provides an analysis of the effects of the COVID-19 crisis on unemployment in the country.