Economic Profile of Georgia

GEORGIA
Economic Freedom Score
25
Least free 0

50

75 100 free
Most

World Rank:

21

Regional Rank:

11

72.2

economic score is 72.2, G eorgia’shigherfreestfreedom2013 Index. Itsmaking its economy the 21st in the overall score is 2.8 points than last year, with improvements in six of the 10 economic freedoms including management of public finance, investment freedom, and property rights. Georgia is ranked 11th out of 43 countries in the Europe region, and its score is the most improved in the 2013 Index.

Freedom Trend
74 73 72 71 70 69 68

In a challenging global and regional environment, the Georgian economy has demonstrated a high level of resilience. After some backsliding last year, Georgia regained the status of “mostly free” in the 2013 Index. Persistent efforts to eliminate corruption and restore fiscal stability have borne fruit. Access to legal documents has been facilitated, and fiscal consolidation has generated narrowing budget deficits and lower public debt. Despite this progress, however, momentum for comprehensive reforms to limit government spending and restrict the growth of economic regulations has flagged. Deeper institutional reforms to enhance judicial independence and effectiveness also remain critical. backgRound: President Mikheil Saakashvili and his centerright United National Movement won presidential and parliamentary elections in 2004 and 2008. However, billionaire Bidzina Ivanishvili and his Georgian Dream coalition decisively won parliamentary elections in late 2012, paving the way for Ivanishvili to become prime minister. Georgia is a leading economic reformer among the post-Soviet countries and has been particularly effective in fighting corruption. Russia’s continued military occupation of the Georgian provinces of Abkhazia and South Ossetia and recognition of their secession violates Georgia’s territorial integrity. Georgia left the Commonwealth of Independent States in August 2009. Relations with Russia remain difficult, but Georgia’s government has taken unilateral steps to improve ties. The economic recovery that began in 2010 continues, with an emphasis on tourism and construction.

2009

2010

2011

2012

2013

Country Comparisons
Country World Average Regional Average Free Economies
0 20 40 60 80

72.2 59.6 66.4 84.5
100

Quick Facts population: 4.5 million gdp (ppp): $24.5 billion 7.0% growth in 2011 5-year compound annual growth 4.7% $5,491 per capita unemployment: 16.3% inflation (cpi): 8.5% fdi inflow: $974.6 million public debt: 33.9% of GDP
2011 data unless otherwise noted. Data compiled as of September 2012.

See page 477 for an explanation of the methodology or visit the Index Web site at heritage.org/index.

How Do We Measure Economic Freedom?

219

GEORGIA (continued)
THE TEN ECONOMIC FREEDOMS
Country World Average Rank

RULE OF LAW

Property Rights 45.0 Freedom from Corruption 41.0
0 20 40 60 80 100

68th 62nd

Fighting the effects of Soviet-era corruption, the government has arrested former officials and policemen, radically downsized bureaucracies, and cracked down on smuggling. Several new “Public Service Halls” quickly deliver inexpensive legal documents such as birth certificates, passports, and property titles. Other efforts are underway to improve the security of property rights, though protection of intellectual property rights is largely ineffective.

LIMITED GOVERNMENT

Fiscal Freedom 88.2 Government Spending 68.9
0 20 40 60 80 100

33rd 81st

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. The overall tax burden equals 23.5 percent of total domestic income. Government spending has fallen to 32.2 percent of total domestic output. The budget balance has been in deficit, but public debt remains below 35 percent of GDP. Budget management has helped to stabilize the fiscal situation since the 2008 war.

REGULATORY EFFICIENCY

Business Freedom 90.6 Labor Freedom 91.1 Monetary Freedom 72.6
0 20 40 60 80 100

16th 3rd 122nd

The competitive regulatory framework is conducive to entrepreneurial activity. It takes only two procedures and two days to launch a business, and no minimum capital is required. Reform of bankruptcy and licensing requirements has slowed. The non-salary cost of hiring a worker is moderate, and regulations on work hours are flexible. Inflation has decelerated. Prices are generally set in the market, but the state maintains price controls.

OPEN MARKETS

Trade Freedom 89.2 Investment Freedom 75.0 Financial Freedom 60.0
0 20 40 60 80 100

6th 27th 40th

After achieving independence, Georgia unilaterally slashed import barriers. The trade-weighted average tariff rate is one of the world’s lowest at 0.4 percent, and non-tariff barriers are relatively modest. Foreign and domestic investments receive equal treatment. The growing banking sector offers improved access to financing, although the stock exchange remains small and underdeveloped.

Score Changes
RULE OF LAW
Property Rights Freedom from Corruption
220

LIMITED GOVERNMENT
+5.0 +3.0 Fiscal Freedom Government Spending +0.4 +13.1

REGULATORY EFFICIENCY
Business Freedom Labor Freedom Monetary Freedom +3.7 –1.0 –1.8

OPEN MARKETS
Trade Freedom 0 Investment Freedom +5.0 Financial Freedom 0

2013 Index of Economic Freedom