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Quick Facts
- Population:
- GDP (PPP):
- $22.4 billion
- 6.4% growth
- 5.2% 5-year compound annual growth
- $5,114 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Georgia’s economic freedom score is 69.4, making its economy the 34th freest in the 2012 Index. Its overall score is 1.0 point lower than last year, with declining ratings for corruption, government spending, business freedom, and monetary freedom. Georgia is ranked 16th out of 43 countries in the Europe region, and its overall score is higher than the world average.
Georgia had attained status as a “mostly free” economy the past two years but fell back to the “moderately free” category this year. Still, the economy performs quite well in some key policy areas. Notable reforms to enhance regulatory efficiency have been implemented, and open-market policies are maintained along with low tax rates. Despite a sharp contraction due to the Russian invasion and the global recession, the economy demonstrated a high level of resilience overall.
Lingering institutional weaknesses in two areas call for much more committed reforms. Georgia continues to score below the world average in freedom from corruption and the protection of property rights, and marginal reforms have failed to generate much improvement. In addition, public spending has been growing as a share of GDP, and the budget balance has been negative.
Background
President Mikheil Saakashvili and his center-right United National Movement won presidential and parliamentary elections in 2008 and municipal elections in May 2010. The 2008 war with Russia contributed to Georgia’s political and economic instability. Russia’s continued military presence in the regions of Abkhazia and South Ossetia is also problematic, and their “succession” is recognized only by Russia and a couple of other countries. Georgia left the Commonwealth of Independent States in August 2009. Relations with Russia remain difficult, but issues that threatened Russia’s accession to the World Trade Organization have been successfully negotiated. The economy contracted in 2009 but began to rebound in 2010.
The rule of law is not strongly enforced. Despite some reform efforts, the judicial process remains subject to political influence and corruption. The effectiveness of the court system has not improved notably as a result of the requirement that judges be tested before appointment. The protection of intellectual property rights is erratic and largely ineffective. Corruption continues to undermine all facets of economic freedom.
The flat income tax rate is 20 percent, and the flat corporate tax rate is 15 percent. Other taxes include a value-added tax (VAT) and a tax on dividends, with the overall tax burden equal to 24.4 percent of total domestic income. Government spending has been expansive, reaching 38.5 percent of total domestic output. The budget balance has been in deficit, but public debt remains below 40 percent of GDP.
The regulatory environment is efficient. It takes only two procedures and two days to start a business, and no minimum capital is required. Reform of bankruptcy procedures and licensing requirements has slowed. The non-salary cost of hiring a worker is moderate, and regulations on work hours are quite flexible. Inflation has been rising. Prices are generally set in the market, but the state maintains price-control measures.
Trade has been considerably liberalized. With over 80 percent of imports entering Georgia duty-free, the trade weighted tariff rate is quite low at 0.4 percent. Non-tariff barriers are relatively modest. Foreign and domestic investments receive equal treatment, though transparency is an issue. With the banking sector growing and modernized, access to financing has improved. The stock exchange is small and underdeveloped.