Challenges to the Georgian Economy against the Background of International Sanctions against Russia

News | Research | Economics and Social Policy | Pressing Issues | Analysis 24 March 2022

Russia's aggression against Ukraine and the start of a war in the region have a significant impact on the Georgian economy. The current review discusses the dependence of the Georgian economy on the economies of neighboring and friend countries. The study analyses the current state and expected dynamics in trade, remittances, foreign direct investment, and the energy market.


Assessing the dependence of the Georgian economy on Russia will allow us to identify challenges and support the increase of access to information. Identifying existing opportunities will help us concentrate more on developing the economic policies needed for the country and increasing the efficiency of public policy to overcome the economic challenges the country is facing.


The study discusses two scenarios – Medium and Strict. The medium scenario does not foresee the imposition of additional restrictions on Russia, as an aggressor country, by Georgia and discusses the economic impact of the existing sanctions. The strict scenario envisages the possibility to impose visa requirements on Russian citizens, due to increased risks, and monitoring the free flow of capital. This is expected to lead to trade restrictions.


Expected losses of the Georgian economy reach -$114 mln without additional restrictions imposed on Russia. In the case of imposing additional restrictions, in the context of security and economic diversification, economic losses can rise to -$500 mln. Additional -$386 mln loss, which is only 2% of GDP in 2021, can be offset by Georgia's closer cooperation with Western partners.


Main findings:


Georgian economy is expected to lose -$114 mln according to the medium scenario and -$500 mln according to the strict scenario. Decrease in exports, remittances, and investments are compensated by increasing tourism revenues and decreasing imports, which reduces the outflow of money from the country.


Exports are expected to decline by approx. 7% (-$300 mln) in 2022, compared to 2021. Reductions are expected mainly to Russia (-42%), Belarus (-33%), and Ukraine (-50%). Increasing exports to other countries will slightly mitigate the effect of reduction. The export will decrease by approx. –$525 mln in case of strict scenario.

In 2022, imports are also expected to decline by approx. $174 mln (-$450 mln with strict scenario), along with the exports. Decreased foreign direct investments and economic activities leads reduce imports. However, the increased number and duration of visits to the country slightly offset this decline.


This year, even with an interruptions of remittances from Russia, the Georgian economy will not lose more than $89 mln according to the medium scenario (-$116 mln with the strict scenario), and total remittances will not decrease by more than 4%. Dependence on Russian remittances has been declining sharply since 2008. Russia’s share in total remittances fell from 65% to 16% during this period and is expected to decline further in 2022.


Tourism revenues are expected to rise by +$456 mln in 2022 (+$153 mln with a strict scenario), compared to 2021. Total revenue is expected to be $1.7 bln (with a 27% share of Russian citizens). The number of visitors and the duration of stay increase.


Electricity imports from Russia can be replaced by imports from neighboring and friendly countries. Electricity imports from Russia accounted for 9% of total consumption in 2021 and can be easily replaced by increased imports from friendly countries.


This year, as a result of the increased risks in the region, investments are expected to drop by -$350 mln (-$450 mln with a strict scenario), which can be offset by increased integration with the US and the EU.




Replacing imports from Russia is important for the diversification of the Georgian economy and requires the active involvement of the government. Diversification of export markets depends on increasing the quality of goods, finding new markets, and requires significant support.


Georgia's dependence on Russia has sharply increased since 2012, according to the Export Concentration Index. This happened at the expense of replacing the EU market. Therefore, entrepreneurs are at high risk and are expected to receive significant losses this year.


The country needs to accelerate its integration within the European Union and take effective steps to improve the investment environment, in response to socio-economic challenges.


The unstable political environment, legal disputes with investors, delays in the implementation of important international infrastructural projects, lack of qualified human capital, and migrationmakeGeorgia less attractive to investors and significantly reduces the chances attract investments from the companies that left the Russian market.


In 2021, there was a sharp decrease in foreign direct investment, andthe Business ConfidenceIndex has also deteriorated compared to recent years. Due to the increased risks in the region, investments are expected to decline even more in 2022.


It is important to establish strict monitoring of the free capital flowin terms of the aggressor country and appropriate restrictions in response to existing threats.

The Georgian government, the National Bank, and the private sector need to consider that, in parallel with sanctions against Russia, there areincreasing reputation risksand possibilities of money laundering in Georgia. This could pose greater harm to the country compared to individual restrictions.


The European Union, the United Kingdom, the United States, and Canada have banned all transactions with Russia. The sanctionswere imposed on Russian banks, excluding them from the SWIFT international payment system. At the same time, Japan, New Zealand, Taiwan, and Australia have introduced restrictions against the aggressor country, which include the termination of trade and various economic sanctions on Russian oligarchs.


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This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.

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