ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
GEORGIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Outlook
Despite existing concerns that political
process in Georgia may develop in
unpredictable manner, fortunately, clear signs
of increased stability and inevitability of
elections process are in place. Today,
practically there is no doubt that for political
parties the next three years will be period of
preparation to elections (local government -
2010, parliamentary - 2012 and presidential -
2013), election campaigns and the related
processes. Hopefully, the pending local
government elections in 2010 will take place in
normal, constructive atmosphere and put
grounds for stable political and economic
development of the country.
No doubt, there still remain many political and
social problems, first of all related with
occupation of 20% of the country (Abkhazia
and Tskhinvali region) by Russian military
forces and the heaviest burden of about half
million refugees from the mentioned regions.
However, the likeliness of worsening of the
situation is very low, though chances for
restoring territorial integrity of the country in
2010 are also very low.
As for the economic situation, according Mr.
Edward Gardner, IMF Resident Representative
in the country, Georgia’s economy is showing
tentative signs of turning around, but a full-
fledged recovery will depend on a more
upbeat global environment and the easing of
credit conditions in the country.
Until mid-2008, the Georgian economy was
growing rapidly, fueled by high levels of
foreign direct investment and strong credit
growth. But in August of that year, the armed
conflict with Russia over the disputed
Tskhinvali region proved a devastating setback
for Georgia’s economy, prompting the
authorities to request a US$750 million Stand-
By Arrangement (SBA) from the IMF and to
secure emergency financing from donors
totaling US$4.5 billion for next three years. In
the months that followed, Georgia’s difficulties
were compounded by the impact of the global
economic crisis.
However, the country authorities’ economic
program has been successful in putting a floor
on the contraction of economic activity in 2009
and in restoring confidence. On the back of
these achievements, the economic recovery
that started in the second half of 2009 is
expected to continue in 2010, although at a
moderate pace. The 2010 economic program
is built on a 2 percent real GDP growth
projection, and CPI inflation of 5 percent. The
containment of public expenditures within the
budget envelope approved by parliament
should lead to a reduction of the government
deficit to 7.4 percent of GDP, down from 9.2
percent in 2009. By contrast, the external
current account deficit is projected to widen to
14 percent of GDP, largely on account of a
pick up of import growth. With private capital
inflows expected to lag behind, IMF financing
will help cover the resulting balance of
payments gap.
As for the business climate in the country –
according Mr. Gardner, it was hurt by the
political uncertainty that followed the conflict
with Russia and the domestic unrest that
followed. That unrest has now subsided, and
the fact that foreign direct investment has
been growing in the course of 2009 attests to
that improvement. When it comes to the legal
and institutional business environment,
Georgia is very well placed. The country has
made remarkable strides over the last few
years—the World Bank’s Doing Business
Index ranks Georgia first in Eastern Europe
and Central Asia and first among lower
middle-income countries. Georgia has also
moved up quickly through the ranks of
Transparency International’s Corruption
Perception Index, and there’s a general
perception that interactions between the public
and the government are now free of
corruption. The authorities’ structural reform
program is now focusing on improving
government efficiency and transparency, while
continuing the privatization of public sector
assets.*
* Information provided by GSE.
Key Information Contacts
National Bank of Georgia www.nbg.gov.ge
Ministry of Finance of Georgia www.mof.ge
Financial Monitoring Service of Georgia www.fms.gov.ge
Georgian Central Securities Depository www.gcsd.ge
Georgian Securities Industry Association www.gsia.ge
Georgian Corporate Directors Association www.gcda.ge
REAL GDP
(GEL millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
10
9
8
7
6
5
4
3
2
1
2005
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