Examining the Impacts of Russian Sanctions on the Georgian Economy
Russia’s invasion of Ukraine has profoundly impacted the global economy, spiraling food and fuel prices, significant energy shortages, and the prospect of protracted recession in the US and EU. The countries in the immediate geographical neighborhood were also affected. Both Russia and Ukraine are among the top five export destinations for Georgia. Ukraine accounted for 9.5 percent of Georgia’s exports in January 2022, while Russia for 12.9 percent. The biggest linkages, however, come not from the export of goods but services, such as tourism.
To provide a deeper understanding of the effects of Russia’s war on Ukraine on the Georgian economy, USAID utilized the Learning, Evaluation, and Analysis Project (LEAP III), implemented by Integra, to assess to estimate the impact of Russian sanctions on the economy of Georgia with deep dives into the agricultural, transport/logistics, and
tourism sectors of the Georgian economy.
Preliminary results based on the first six months of 2022 revealed some surprising findings not anticipated initially by most analysts. Contrary to the initial expectations, the financial sanctions against Russia did not significantly curtail goods trade with Georgia. Moreover, Georgia’s May and June growth estimates remained strong primarily due to the positive trends in tourism, massive inflows of money transfers from Russia, and significant immigration from Russia and Ukraine, which boosted local consumption.
Despite the signs of economic resilience, substantial risks to the Georgian economy remain. One of the main risks is double-digit inflation (especially food inflation) emanating from demand and supply pressures. Real estate prices, particularly for rental real estate, nearly doubled, hurting vulnerable populations. Financial inflows from Russia strengthened the Georgian Lari to the point where the country’s exports may become less competitive. At the same time, the outflow of the Georgian labor force abroad in the wake of weakening COVID regulations is further hurting local businesses.
The preliminary results suggest that the government should strive to strengthen the protection of the vulnerable groups while closely monitoring the risks emanating from massive money transfers from Russia.
ABOUT LEAP III
LEAP III provides a mechanism for USAID field missions and bureaus to efficiently and cost-effectively access rigorous, independent, and high-quality analytical services to support economic and policy analyses, strategy and project design, monitoring and evaluation, training, and knowledge management.