Georgia's Economy: A Crisis or Just Stagnant?

The recent controversy in Georgia surrounding the attempts of the opposition United National Movement (UNM) and the Free Democrats, with the support of President Margvelashvili, to call for a special session of parliament to address the economic crisis in the country, and the decision by the ruling Georgian Dream (GD) coalition to refuse to participate in this special session of parliament reveals quite a bit about the economic and political environment in Georgia.

The rationale for that decision, by the GD, was offered by Parliamentary Chair David Usupashvili who asserted that “It is obvious that their (the opposition) goal is not a discussion of the proposed topic itself, but discussing it in an extraordinary, emergency and alarming mode…and to saturate media space as much as possible with debates on this issue.” Usupashvili is probably empirically right in that claim, but by making it, he nonetheless puts himself, and indeed the GD, in an undesirable political position.

Georgia’s economy may or may not be at the point of crisis, but it is clearly not in good shape. The recent decline in the lari, and the accompanying inflation, as well as persistent widespread unemployment has created a political economy that is somewhere between stagnant and in crisis. Usupashvili has essentially been forced into the position of claiming there is no need for a special parliamentary session because the economy is just bad, but not actually in crisis. That is, of course, a somewhat absurd position to have to take, but it may in fact be true. Usupashvili is by no means the only GD leader, or even the prime GD mover, on this issue, but as leader of the parliament, he has had to speak on the question of the special session.

What has happened in recent weeks, not for the first time since 2013, is that the GD has been outmaneuvered politically. The President and Free Democrats have joined with the UNM to force the government into the position of essentially arguing that the economy, while not good, has not declined enough to warrant parliament discussing in an intense and focused way. This is, of course, a distinction without a difference. Moreover, it raises the politically disastrous question for the GD of just how bad the economy has to get before they will call it a crisis.

The call for a special session of parliament is largely a political ploy aimed at signaling that the opposition parties are more concerned and aware of the problems with the economy than the government is. A special parliamentary session is unlikely to lead to legislation that will turn the economy around. Moreover, Georgia’s persistent and longstanding economic problems underlying the current economic downturn are not the kind that can be ameliorated quickly by legislative action. If this were possible, this would have been done years ago.

Politics aside, the GD’s position is not entirely irrational. The economy is not doing well, but creating the appearance of crisis could indeed lead to panic based economic activity thus creating more economic problems. Moreover, the crisis of the Georgian economy has been almost a constant for the last few years. Additionally, it is almost certain that many in the GD leadership believe the structural problems of the economy have their roots in the years the UNM was running Georgia. There is some truth to that assertion as well. The economy the GD inherited when they took office was characterized by widespread unemployment; and growth was substantially slower than it had been a few years before.

The problem for the GD is that in a democracy, and Georgia in this regard is enough of a democracy for this to be pertinent, voters do not, and in fact should not, care too much about what the previous government did. Instead, they want to know what the current government will do for them. By taking the position they have taken, the GD appears, deliberately or not, to be telling the Georgian not to worry about the economy. Given the state of the lari, for example, this advice is not particularly helpful or easy to follow. 

In democracies citizens are constantly, and appropriately, asking the government “what have you done for me lately?” This is undoubtedly frustrating for the government, but it is unavoidable as citizens begin to feel empowered enough to make demands on their government. Georgians may still be grateful that the GD defeated the UNM, and are unlikely to return the UNM to power anytime soon, but that does not mean they cannot, or should not, make further demands on the GD government. The GD government needs to understand that and respond to the current economic problems accordingly.

Solving the economic problems facing Georgia, whether the longstanding ones such as stubbornly high levels of unemployment, or the more immediate concerns such as the relative value of the lari, may not be possible, thus creating a quandary for the GD government. However, it is not difficult to convincingly demonstrate concern about the state of the economy. While this will not help those struggling to make ends meet or who do not have work, it will at least forestall a political crisis and probably buy the government enough time for either their programs to work or for global economic factors to begin to break Georgia’s way again. Because the GD government has not done this, the impact of the worsening economy on their own political fortunes has been worse than it needed to be.

It may be purely a coincidence that the same week that the opposition parties were calling for a special meeting of parliament, the pre-trial detention of Gigi Ugulava, the former Mayor of Tbilisi, was extended, but from the outside it does not unambiguously look that way. The GD appears to be going back to what they perceive, so far not inaccurately, to be an inexhaustible well of anti-UNM animus to rally their base and shift the focus away from the economy. The problem with that approach is that, rightly or wrongly, the notion of selective justice has come to define this government outside of Georgia, not least in the US. 

The announcement of the extension of Ugulava’s detention was met almost immediately by a statement of concern by the US Embassy in Georgia. The GD has, thus, backed themselves into a corner where because they have not been able to get ahead, politically or substantively, of the current economic problems, they are forced to keep doing things that damage their government in the eyes of the west. The GD are in danger of becoming, with regards to policy, a caricature, where they respond to every policy question by citing, what they believe was, the criminality, abuses and authoritarian nature of the previous regime. Over time, the veracity of these claims will be decreasingly relevant as voters put the past behind them and, quite naturally, focus their demands more on the future.

Lost in the political machinations of recent week were stories of growth in direct foreign investment (DFI) in Georgia in 2014, accelerated trade with China and increased privatization efforts. These are not huge developments, nor are they uncontroversial, but together they provide evidence that the government is working to address the economic problems in one form or another. However, because the government was outplayed politically by other parties, these stories remained firmly in the background.

The GD’s task remains both to do something about an economy that may or may not be in crisis already, as well as to appear to be concerned about the problem and therefore addressing it. At first glance the former task seems substantive and the latter political, but these two are also interrelated. If the government appears to be working hard to solve the economic problems, the people will likely allow them more time and be more likely to perceive the government as being successful. Similarly, if policies are being implemented, it will be much easier for the government to present themselves as tackling the economic problems facing the economy.

For the Georgian government, the stakes may not be immediate, but they are nonetheless high. This government has promised on several occasions to improve the economy, and indeed ran on that platform in 2012. If they are unable to solve these vexingly enduring economic problems, and are perceived as not being sufficiently concerned about them, ultimately it will undermine their political support. Being outmaneuvered by the UNM now is embarrassing for the GD, but it is unlikely to bring consequences in the short term. However, if a viable alternative to GD rule emerges that is not tainted by the UNM era, the GD government will be in a much more difficult conundrum.

The Georgia Analysis is a twice monthly analysis of political and other major developments in Georgia. Lincoln Mitchell is a political development, research and strategic consultant who has worked extensively in the post-Soviet space.  If you would like to be on the Georgia analysis mailing list or are interested in more research, analysis or consulting for your business, government, campaign or other organization, please email