PM’s annual 2018 report:
Major Georgian economic developments at a glance

How has the government of Georgia dealt with the challenges of poverty, supported the development of small and medium sized business and improved the country’s infrastructure in 2018? 

Prime Minister of Georgia Mamuka Bakhtadze delivered the government’s annual report today, highlighting all the important economic developments of 2018. 

Bakhtadze said that despite the fact that the government managed to reduce poverty by 10% in Georgia, a significant part of the country’s population still lives in poverty.

We have initiated real changes since 2012 and all my predecessors did their best to reduce the most difficult problem facing our country – poverty – as quickly as possible. We managed to reduce poverty by about 10%. However, unfortunately, a significant part of our population still lives in poverty. Unemployment is still the main economic challenge and this is a very difficult barrier for our country to develop rapidly. Naturally, the main task for us is to overcome poverty”, said Bakhtadze. 

What efforts did the government make to overcome poverty?

Bakhtadze said that important reforms have been implemented in Georgia and “I am sure these reforms will help us to overcome poverty, but it will take time”. 

To better assess the recent government-initiated and implemented reforms Bakhtadze gave some key international ratings in which Georgia’s performance has improved significantly. 

Bakhtadze said that the international ratings also help Georgia to return its historic role as being the economic and cultural centre of the region. Bakhtadze said the government’s goal is to put Georgia in the top five countries in all major international ratings. 

PM Bakhtadze gave some key international ratings in which Georgia’s performance has improved significantly. Photo: PM's press office.

• Georgia ranks 6th among 190 countries in the World Bank’s Doing Business report.
• Georgia takes 7th place among 162 countries in the index of Economic Freedom of the World, published by the Fraser Institute.
• The index of Economic Freedom survey by the Heritage Foundation ranked Georgia in 16th place among 186 countries.
• The Open Budget Survey by the International Budget Partnership ranked Georgia 5th in the world, based on an analysis of 144 nations’ budget transparency, participation and oversight.
• Georgia takes 45th place in the international rating of the property protection.
• Georgia takes 61st place for Media Liberty Index. 

‘A misguided economic model has led to poverty in Georgia’

The main cause of poverty is the economic model by which Georgia was trying to develop its competitiveness. This model turned out to not be so successful for the country as it was full of unfair rules. We need an economic model that will touch each citizen of Georgia”, said Bakhtadze. 

Overdue loans have become one of the main culprits of poverty in the country. Bakhtadze said that citizens of Georgia faced the problem of overdue loans in 2007 when the then-president made the decision to remove the upper-level interest rate and this resulted to overdue loans. 

Due to the high interest rates on loans and irresponsible lending practice, borrowers became unable to pay their debts and were blacklisted. 

This is the reason that about 600,000 citizens of Georgia were included on the so-called blacklist. With the rules that we have introduced [new regulations on responsible lending practices that will also come into force in 2019] we will avoid overdue loans and blacklisted debtors in the future”, said Bakhtadze. 

But what could we do for those 600,000 blacklisted citizens, who are about 1/3 of our population and who have been excluded from social and economic life? No economic reform could overcome this challenge so we have made a decision and started an unprecedented project of annulling the loans of those citizens. This is a single solidarity act. Thanks to this decision these 600,000 citizens will meet the New Year without loans and will be removed from the blacklist”, said Bakhtadze.

Reducing taxes to support SMEs and overcome poverty

Overcoming poverty is strongly connected to developing small and medium sized (SME) businesses in Georgia, said Bakhtadze, adding that tax rates were higher for small companies than for the large companies. 

This was a big barrier for developing small businesses in Georgia. So have initiated to implement the VAT Return reform in 2018, we could make impossible possible. One year ago no one could imagine that we would become able to return over half billion GEL to our entrepreneurs. This year, before December 31 our entrepreneurs will be returned over half a billion GEL from our budget. In 2018-2020 we plan to return 1.5 billion GEL to our entrepreneurs”, said Bakhtadze.

We have other innovative reforms. We are doing our best to reduce bureaucracy. From January 1, 2019 Georgia will be the first country in which entrepreneurs will be required to present only one tax document, instead of five tax documents”, said Bakhtadze. 

Bakhtadze highlighted the government’s efforts to make Georgia regional financial centre and named the new initiative of introducing the electronic residency as an example. This initiative allows citizens of 34 countries to electronically register their companies and open bank accounts in Georgia without visiting the country. 

Also from next year another initiative will come into play that will offer unique tax benefits to those large transnational companies which open regional representations in Georgia.

Bakhtadze also announced about the new Tax Code that will come into force in January 2020. He said that foreign as well as Georgian experts are currently working on the document. 

Bakhtadze accented the importance of a new, European-style, customs code that will come into force in Georgia in 2019. Bakhtadze said that the existing customs code failed to respond to current challenges and that is why the government initiated the new customs code.

Georgia and free trade deals

Georgia is the only country in the region to have the free trade regime with the European Union as well as with China”, said Bakhtadze. “We also have free trade deals with all our neighbouring countries”. 

Bakhtadze announced that today, on December 20, an important document will be signed in Paris, France that will oblige Georgia to adapt its legislation to international arbitration. 

Tbilisi will be the second city after Paris in Europe where the International Court of Arbitration will resolve commercial disputes. This will be very important basis for turning Georgia into the regional economic centre”, Bakhtadze said. 

How did Georgia’s infrastructure develop in 2018?

Bakhtadze said that “maximum amount of investments” were made in infrastructure in 2018 and in 2019 more will be invested. 

Major infrastructural projects implemented this year included: 

• Kobuleti bypass road opened.
• The 5.6 km long road which leads to the Gergeti Trinity Church has been constructed.
• 210km long road was completely repaired, 20 bridges were renovated and 17 coastal protection project was implemented.
• Tskneti-Betania road opened.
• 2 km long tunnel constructed to Georgia’s Dariali and Devdorak gorges.

Every day when we could not manage to pass vehicles and the road was closed the Georgian economy was losing more than million GEL. By opening this tunnel this problem is solved once and for all”, Bakhtadze said. 

Bakhtadze also announced some of planned infrastructure projects for 2019. The plans include continuation of East-West Highway construction, including Rikoti Pass, which is considered the most complicated section of the Highway.

In the coming years including 2020 all infrastructural projects that is vital for developing Georgia’s economy will be completely implemented so the lack of infrastructure will no more be hamper for economic development in the country”, Bakhtadze said. 

PM Bakhtadze presenting the project of upcoming above-ground metro system. Photo: PM's press office.

Bakhtadze also accented the importance of large infrastructural project that is planned for capital Tbilisi for 2019 - development of an above-ground metro system which includes construction of eight new metro station. 

In his speech Bakhtadze also talked about ecology and green policy. He announced that government plans to annual all taxes for those farmers who produce organic products in Georgia. Bakhtadze said that Georgia has potential to become the leader country in producing ecologically clean products and export it to Europe as the demand has steadily been increasing on such products there. 

Bakhtadze talked about Georgia’s Mountain Law and newly adopted Mountain Strategy and announced that the budget for the Mountain Law will be increased in 2019.

He also talked about what important steps were made to supply Georgia’s rural areas with the natural gas. Bakhtadze said that Georgia’s mountainous Adjara region also got involved in this project and 11,000 families already receive natural gas there.