Georgia

Politics:

• Analysis

  Georgia politics: Quick View - Parliamentary vote reduces presidential powe

  Event

  In a third and final vote on March 25th, Georgian legislators approved an amendment to the constitution reducing the powers of the president in favour of parliament.

  Analysis

  The constitutional amendments approved by parliament will boost the legislature's powers at the expense of the executive. The legislation, which was approved by 114 votes out of 150, means that the president will lose the power to dismiss the cabinet, disband parliament and call elections. Members of parliament (MPs) from the United National Movement (UNM) party of the president, Mikheil Saakashvili, supported the amendments in all three readings of the bill. Their support was essential as the ruling party, Georgian Dream, did not have the necessary 100 seats to ensure that the constitutional amendment went ahead (the party has 94 seats). Mr Saakashvili must now sign the changes into law, which seems likely to be a smooth process.

  The bill has brought forward constitutional changes that had been agreed before Georgian Dream came to power in the October 2012 parliamentary election. The previous constitutional amendments, which were approved in 2010, were not due to come into effect until after the October 2013 presidential election. There had been some speculation at the time that Mr Saakashvili, who will have served his two-term limit by October 2013, may have proposed the amendments to ensure that his party has a greater say in the political system when he leaves office. The drawing to a close of the discussions on the constitutional amendment will enable Mr Saakashvili to make his annual address to parliament-Georgian Dream had postponed the address until the disagreement over constitutional powers was resolved.

  The legislative amendment is the latest development in the feud between Mr Saakashvili and the Georgian Dream-dominated parliament. Although Mr Saakashvili and the UNM made some concessions by supporting Georgian Dream's proposal to reduce presidential powers, we do not believe that this will bring an end to tensions between the two parties. Mr Saakashvili has made it clear that he will fight to ensure that he is not marginalised politically. Nonetheless, although the likelihood of sniping between Georgian Dream and the executive is high, the latest changes to the law will go some way to reducing the risk of an all-out political crisis in Georgia.

  March 26, 2013

• Background

  Georgia: Constitution and institutions

  The 1995 constitution was amended in 2004 and 2006

  The constitution adopted on August 24th 1995 defines Georgia as a presidential republic. The unicameral legislature has 235 deputies, 150 elected by party list by a proportional system and 85 by constituency. However, following the 2008 general election, the number of deputies will be reduced to 150, of which 100 are to be elected by party list and 50 by constituency. There are 12 large administrative regions subdivided into 63 districts, and eight zones under the control of city councils. Abkhazia and Adjara (Adzharia) are autonomous regions. The Georgian government does not recognise South Ossetia.

  The constitution was amended in early 2004, following the resignation of Mr Shevardnadze and the collapse of his government. This resulted in the formation of a cabinet and the creation of the post of prime minister for the first time, passing power from the legislature to the executive. Under new constitutional rules, the president appoints a prime minister after consulting with the leaders of parliamentary factions. The prime minister must then appoint ministers with the agreement of the president.

  The amendments strengthened the hand of the president. The prime minister is responsible for the day-to-day affairs of government, although the ministries of defence and interior are under the direct purview of the president, who appoints the relevant ministers. The president is able to block any “unconstitutional” decision made by parliament and has the power to dissolve the legislature if it fails to approve the budget in three successive attempts. Lawmakers in turn are able to dismiss the cabinet with a three-fifths majority vote. The current political system was created largely as a power-sharing agreement between the president, the then prime minister, Zurab Zhvania, and the parliamentary speaker. Since Mr Zhvania's death in 2005 power has become concentrated in the hands of the president and his closest advisers, with the prime minister, Mr Nogaideli, acting as a technocratic head of government on primarily economic issues.

  The constitution was amended again in late 2006. The changes prolong the current term of parliament, and provide for simultaneous elections for the presidency and parliament sometime in late 2008. The opposition criticised the changes, arguing that they set an undemocratic precedent, and that the ruling National Movement was using the pretext of external threats to consolidate its power further. When justifying the constitutional changes, Mr Saakashvili used two main arguments. He said he believed that by holding the elections at the same time the country would save money, and that the changes were necessary because of the threats arising from foreign influences—by which he meant Russia—that seemed to intensify during an election cycle.

  The Venice Commission of the Council of Europe, which reviews member states' constitutions and laws, also criticised the constitutional amendments, albeit more mildly. The commission's main concern was that political considerations, however justified, were being deployed to instigate such changes. It commented that such political motives should not be used to prolong the term of a parliament. It also argued that the desire to bring together elections for parliament and the presidency would be convincing if this became an entrenched custom. However, as the constitutional amendments make clear that the elections will only take place simultaneously in 2008, they appear to be motivated by political expediency.

  Georgia's court system has as its highest bodies the Supreme Court and the Constitutional Court. The heads of both institutions are appointed by the president. There has been substantial international support for court reform, and judges now have to pass tests before appointment. However, corruption remains in the legal system, which is held in low esteem by the public.

  Privileges granted to the Georgian Orthodox Church in an amendment to the constitution signed in early 2001 (including tax breaks and exemption from military service) have been criticised by human rights groups, which argue that the freedom of religious worship enshrined in the constitution could be threatened. There is no state religion, but smaller Christian denominations have been subject to harassment.

  September 20, 2007

• Structure

  Georgia: Political structure

  Official name

  Georgia

  Form of state

  Georgia was an independent republic between 1918 and 1921, but in 1922 it was incorporated into the Soviet Union, from which it declared its independence in April 1991. The Abkhaz and South Ossetian autonomous territories, created in 1922, have both declared their independence from Georgia. Russia recognised the independence of the two territories in August 2008. A new constitution was approved in Georgia in August 1995, which reinforced the presidential-democratic form of government, providing for a strong executive branch and a unicameral, 235-seat parliament. A constitutional court met for the first time in late 1996. The constitution does not address the status of Abkhazia or South Ossetia, but grants autonomous status to Adjara, another separatist region until its reintegration in May 2004

  National legislature

  The Parliament of Georgia; from 2008, with 150 members: 75 elected by party list and 75 by single-member districts

  National elections

  January 5th 2008 (presidential); October 1st 2012 (legislative). Next elections: October 2013 (presidential) October 2016 (legislative)

  National government

  The president appoints the cabinet, subject to individual approval by the legislature

  Head of state

  President, currently Mikheil Saakashvili

  Main political parties

  Parties with seats in parliament: Georgian Dream (coalition comprising Georgian Dream-Democratic Georgia; Conservative Party; Industry Will Save Georgia; Republican Party of Georgia; Our Georgia-Free Democrats; National Forum); United National Movement (UNM).

  Council of ministers

  President: Mikheil Saakashvili

  Prime minister Bidzina Ivanishvili

  Deputy prime minister & state minister for energy Kakha Kaladze

  Chair of parliament David Usupashvili

  Head of the presidential administration Davit Tkeshelashvili

  Key ministers

  Agriculture Davit Kirvalidze

  Culture Guram Odisharia

  Defence Irakli Alasania

  Diaspora Issues Kote Surguladze

  Economy & sustainable development Giorgi Kvirikashvili

  Education & science Giorgi Margelashvili

  European & Euro-Atlantic Integration Alexi Petriashvili

  Environment Khatuna Gogoladze

  Finance Nodar Khaduri

  Foreign affairs Maia Panjikidze

  Internal affairs Irakli Gharibashvili

  Justice Tea Tsulukiani

  Labour, health & social welfare Davit Sergienko

  Regional development & infrastructure David Narmania

  Central bank president

  Giorgi Kadagidze

  March 01, 2013

Economy:

• Background

  Georgia: Economic background

  Main economic indicators, 2006
  (Actual unless otherwise indicated)
  Real GDP growth (%)	9.4
  Consumer price inflation (av; %)	9.2
  Current-account balance (US$ m)	-1,243.3
  Exchange rate (av; Lari:US$)	1.8
  Population (m)	4.4
  Source: Economist Intelligence Unit, CountryData.

  Download text file (csv format)

  Official statistics indicate that at least 30% of economic activity takes place in the shadow economy. Various studies carried out over the past few years suggest that Georgia had one of the largest shadow economies in the former Soviet Union, with some estimates indicating that it was as large as the official economy itself. Nevertheless, the size of the black market is likely to have declined slightly since the present government came to power in late 2003. Anecdotal evidence suggests that the targeting of several high-profile businessmen on charges of corruption and tax evasion has spurred other enterprises to start paying taxes and enter the formal economy, owing to fears that they may also be prosecuted. However, forcing many of the small-scale enterprises, which operate in the shadow economy, to register with the state has been more difficult, given that graft is continuing to plague the tax and customs administration, and improvements in the business environment are occurring only gradually. The slow rate of the decline of the shadow economy also highlights the challenges that the government still faces in fighting corruption.

  September 20, 2007

• Structure

  Georgia: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (Lari bn)	19.1	18.0	20.7	24.2	24.5
  GDP (US$ bn)	12.8	10.8	11.6	14.4	14.8
  Real GDP growth (%)	2.3	-3.8	6.3	7.0	7.2
  Consumer price inflation (av; %)	10.0	1.7	7.1	8.5	-0.9a
  Population (m)	4.4	4.4	4.4	4.5	4.5
  Exports of goods fob (US$ m)	2,387.6	1,853.7	2,393.3	3,222.9	3,305.4
  Imports of goods fob (US$ m)	-6,224.5	-4,270.5	-5,017.6	-6,643.8	-6,627.8
  Current-account balance (US$ m)	-3,132.4	-1,247.6	-1,323.6	-1,906.1	-1,806.1
  Foreign-exchange reserves excl gold (US$ m)	1,480.2	2,110.3	2,263.8	2,818.2	2,873.0a
  Exchange rate (av) Lari:US$	1.49	1.67	1.78	1.69	1.65a
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011	% of total	Components of gross domestic product 2011	% of total
  Agriculture	11.0	Private consumption	73.5
  Industry	20.8	Public consumption	18.2
  Services	61.5	Gross fixed investment	22.5
  		Net exports of goods & services	-18.5
  Principal exports 2011	% of total	Principal imports 2011	% of total
  Automotives	20.6	Oil & gas	16.3
  Ferrous metals	11.6	Automotives	7.2
  Copper & scrap black metals	9.2	Pharmaceuticals	2.9
  Main destination of exports 2011	% of total	Main origin of imports 2011	% of total
  Azerbaijan	19.5	Turkey	18.0
  Turkey	10.4	Ukraine	10.0
  Armenia	10.2	Azerbaijan	8.7
  US	6.6	China	7.4

  Download the numbers in Excel

  Download text file (csv format)

  March 01, 2013

• Outlook

  Georgia: Country outlook

  Georgia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Mikheil Saakashvili, who was re-elected as Georgia's president in January 2008, will serve out his second and final term in office, ending in October 2013. Political instability will increase in the initial part of the 2013-14 forecast period, as the president and parliament are forced to "cohabit" following Georgian Dream's sweeping victory in the October parliamentary election. Relations with Russia, with which Georgia fought a brief but intense conflict in August 2008 over the breakaway provinces of South Ossetia and Abkhazia, are likely to improve gradually over 2013-14. Georgia will continue to seek to improve ties with the West. However, fears of alienating Russia mean that the EU and the US will be cautious of deepening ties with Georgia. Real GDP growth is estimated at 6.6% in 2012. Growth will rise to 7.1% in 2013-14 due to an improvement in global conditions and robust domestic demand. The current-account deficit will remain large in 2012, at 12.1% of GDP, as the poor external climate limits export revenue. The deficit will narrow to 10.4% of GDP in 2014 as external demand picks up.

  DOMESTIC POLITICS: Mr Saakashvili, who has been in power since 2004, now has to cohabit with a parliament dominated by the Georgian Dream alliance, which swept into power in the October election. The government is now comprised of Georgian Dream politicians, in contrast to previous years when his United National Movement (UNM) dominated the political scene. Already tensions have risen between those associated with the previous government and the new administration. In early November, Georgia's former interior and defence minister, Bacho Akhalaia, was charged with abuse of power and false imprisonment by a court in the capital, Tbilisi. Mr Akhalaia may face up to 12 years imprisonment. Prominent members of Georgia's armed forces have also been charged and face shorter prison terms. The UNM has been strongly critical of the recent arrests; a senior member of the UNM, Giorgi Baramidze, claimed that a "fierce campaign of political persecution" is under way. However, the prime minister, Bidzina Ivanishvili, has sought to distance himself from the arrests, claiming that it was not "a political detention". As the Georgian Dream coalition seeks to distance itself further from the UNM's period of government, tensions with the UNM and with the president could increase. This will pose more of a problem in the initial part of 2013-14 when the government will need to co-operate with the presidency as it pursues its policy goals. Reaching agreement with the president will be less problematic after the 2013 presidential election, as amendments to the constitution significantly reducing the powers of the president, approved in 2010, come into effect. Another factor that could affect political stability is the composition of the Georgian Dream coalition itself. The coalition parties come from a broad range of ideological standpoints, including liberals from the Republican Party of Georgia and conservatives from the National Forum. This raises questions over the longevity of the coalition, particularly as previous attempts by the opposition to join forces have not lasted, owing to deep-seated divisions. Previous attempts at opposition unity have lacked a charismatic figurehead capable of uniting them. Nonetheless, if there are signs that Mr Ivanishvili's popularity amongst the Georgian population is waning, this could put the cohesiveness of the coalition under pressure. Political stability in 2013-14 will continue to be affected by the ramifications of the August 2008 war with Russia. To counteract Russian influence in Abkhazia and South Ossetia since their independence (which has been recognised only by Russia, Nicaragua, Venezuela, Nauru, Vanuatu and Tuvalu), Georgia has continued to provide social assistance and has attempted to improve economic links. However, the government's poor relations with the de facto authorities in the territories will make implementing these plans difficult. Tensions between the breakaway provinces and Georgia will remain high throughout 2013-14.

  INTERNATIONAL RELATIONS: Relations with Russia plummeted to a post-Soviet low in August 2008 as the two countries fought a brief but intense conflict, and full diplomatic ties have been suspended ever since. Russia will accelerate the process of integration of the provinces' military, economic and administrative structures, especially those of South Ossetia, with its own. A deep-rooted animosity between Russia's president, Vladimir Putin, and Mr Saakashvili has not helped the situation. Although the August 2008 war will continue to dominate the foreign policy agenda, there is the possibility for a gradual improvement in relations under the new administration, particularly once Mr Saakashvili leaves office. The desire to join NATO remains high. However, divisions within NATO with regard to Georgian membership have hardened, and Georgia is unlikely to be granted a Membership Action Plan (the final formal step on the way to possible future membership) in 2013-14. Most west European countries are more ambivalent about Georgia's NATO aspirations after the 2008 conflict. These countries would block or postpone prospects for Georgian NATO membership, both to avoid alienating Russia, with which they have extensive commercial ties, and to avoid the risk of going to war for Georgia, particularly if this was the result of a renewed attempt to recover its breakaway provinces. US-Georgian relations were cemented by the large amount of financial aid pledged by the US in the wake of the Russia-Georgia conflict. However, US officials described Georgia's recourse to military action as unwise. The government will also continue to lobby the international community to help to restore Georgian territorial integrity, but it is highly unlikely that Russia will be swayed. The new Georgian administration will continue to seek closer relations with the EU. In November Mr Ivanishvili made the EU the destination of his first official visit abroad. The foreign minister, Maia Panjikidze, stated that Europe was chosen to provide a clear sign of the government's Western orientation. Nonetheless, prospects for a substantial change in Georgia's relations with the EU are limited, because ongoing enlargement fatigue and reservations about expanding into the post-Soviet space mean that the EU is unlikely to offer Georgia a clear prospect of eventual membership. Added to this, the Ivanishvili administration has said that it wants to improve relations with Russia. This could mean that the new government will be more muted in its attempt to deepen ties with the EU.

  POLICY TRENDS: The August 2008 war caused substantial damage to infrastructure, as well as an inflow of several thousand internally displaced persons (IDPs) from the conflict areas. Public funds, supplemented by a large amount of foreign aid, are being used to provide humanitarian assistance to IDPs, and to rebuild military and civilian infrastructure. Economic policy will focus on efforts to reform the legislative, financial, energy and healthcare sectors. However, slower budget revenue growth over the forecast period compared with 2004-08 is likely to impede the reform process. Reform efforts will be tempered by the need to make the reforms more palatable to the population. The state budget recorded a modest surplus in 2011. The consolidated budget deficit, calculated according to IMF methodology, narrowed to 3.6% of GDP in that year, from 6.6% of GDP in 2010. The contraction was driven by a rise in revenue, boosted by robust economic growth, and aided by spending restraint. The government's 2012 budget continued to invest in infrastructure, supported by loans from multilateral organisations and foreign investment. The government is on target to meet its deficit target of 3.5% of GDP, despite the increase in social spending by the previous government in the run-up to the parliamentary election in October. The new government submitted its proposed budget for 2013 to parliament in November. This targets revenue of Lari7.43bn (US$4.39bn) and expenditure of Lari7.3bn, resulting in a budget deficit of 2.8% of GDP (based on the government's economic growth projection of 6%). Further amendments are possible before the approval by parliament in December. Our budget deficit forecast for 2013 is in line with the official one. The Economist Intelligence Unit forecasts that the deficit will narrow further, to 2.3% of GDP in 2014, as revenue growth benefits from a gradual improvement in global economic conditions. The National Bank of Georgia (NBG, the central bank) has lowered the refinancing rate by a cumulative 250 basis points, from 8% in July 2011 to 5.5% in November 2012. The disinflation recorded in 2012 makes it unlikely that the NBG will adjust rates in the near term. In the later part of 2013-14 the NBG will tighten policy gradually, and will resume work towards setting up an inflation-targeting regime. Issuance of certificates of deposit and open-market operations should eventually facilitate this process. Nevertheless, the development of liquid domestic securities markets, which is essential for the smooth conduct of monetary policy, will take time. In the short term tensions will remain between the competing policy objectives of improving external competitiveness and achieving domestic price stability.

  ECONOMIC GROWTH: Real GDP expanded by 7% in 2011, compared with 6.3% in 2010. This represented a continuing strong pick-up, following the negative effects of the global economic recession of 2009, which were exacerbated by the war with Russia in 2008. In 2011 all main sectors recorded real growth. Real GDP grew by 8.2% year on year in the second quarter of 2012, up from 6.8% in the first quarter. In the second quarter, robust year-on-year growth was recorded in manufacturing (20.9%), financial services (15.4%), transport and communications (both 13.4%). These four sectors account for over one-third of total GDP, a robust headline growth. However, a contraction in year-on-year output was recorded in agriculture (-3.2%), and mining and quarrying (-4.4%). The agricultural sector's full-year outturn is expected to be considerably weaker than the 5.5% expansion recorded in 2011. Hailstorms in July and August caused considerable damage to a range of crops, including fruit, vegetables, vineyards and corn. The performance of the mining and quarrying sector in 2012 has been hindered by the deterioration in external economic conditions, which has dampened global demand for-and prices of-mining and metallurgy products, weighing on Georgian export volumes and revenue. These factors will restrict growth in the second half of the year. Remittance inflows from Russia, which is the main destination for Georgians travelling abroad for work, have held up better than expected in 2012. The latest data from the NBG show that net remittances grew by almost 5% year on year over January-September, reaching US$974m. However, inflows from euro zone members Greece and Italy have fallen, as the economic situation in both remains precarious. The ongoing growth in remittances will have provided an important boost to domestic consumption in 2012. Remittances accounted for around 7% of GDP in 2011, reinforcing the importance of such flows to headline growth. Owing to the stronger than expected performance in the first half of the year, we have revised up our real GDP growth estimate for 2012, to 6.6% (from 4.2%). We forecast that the global economic climate will improve moderately in 2013, which will provide a small boost to Georgian growth. Prices of metals will rise a little, and Russian economic growth will remain strong, at a forecast 3.7% of GDP. These positive trends will pick up more strongly from 2014. As such we forecast that Georgian GDP growth will accelerate to 6.8% in 2013 and 7.3% in 2014. If the outlook for the EU countries and the US (which are important export destinations and sources of investment inflows) were to deteriorate over 2013-14, or if metals prices were to fall steeply, this would lead to a downgrade in our growth forecasts.

  EXTERNAL ACCOUNT: The current-account deficit grew to around US$1.9bn in 2011, equivalent to 13.3% of GDP, compared with 11.4% of GDP in 2010. The trade deficit will remain sizeable over 2013-14, although it will continue to be partly offset by surpluses on current transfers and services. Barring another military conflict, services credits over the forecast period will benefit from an increase in hydrocarbons transiting Georgia. The current-account deficit will therefore remain broadly stable in nominal US dollar terms, although it will shrink as a percentage of GDP to around 10.4% in 2014. Net foreign direct investment (FDI) rose to US$1.1m in 2011, up from US$815m in 2010, but substantially below the US$1.7bn peak in 2007. In the first half of 2012 FDI stood at US$490m, up from US$460m in the year-earlier period. The weak external climate will make it difficult for Georgia to attract FDI over the forecast period. Furthermore, concerns over political stability following the war with Russia in 2008 could deter risk-averse investors.

  December 11, 2012

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Country Briefing

Land area

69,700 sq km

Population

4.47m (January 1st 2011)

Main towns

Population in '000 (2010, National Statistics Office):

Tbilisi (capital): 1,153

Kutaisi: 193

Zugdidi: 175

Batumi: 124

Climate

Western Georgia has a humid, subtropical climate. The climate in the east varies from subtropical to temperate. The average temperature ranges from 2°C in January to 24°C in August

Language

Georgian is the state language; Russian is spoken in the towns; Armenian, Azeri, Abkhaz and Ossetian are also spoken

Measures

Metric system

Currency

The lari was introduced on September 25th 1995, replacing the Georgian coupon

Time

Four hours ahead of GMT

Public holidays

January 1st (New Year); January 7th (Christmas); January 19th (Epiphany); Easter Monday (April 15th in 2012); May 26th (Independence Day of the 1918 Georgian Republic); August 28th (Assumption of the Virgin); October 14th (Svetitskhovloba); November 23rd (St George's Day)

September 01, 2012