Interview with an Economist
“Income is distributed very asymmetrically-only a small share of the population feels the significant pace of growth… Considering that inflation has been substantial in recent years, real incomes have not increased but have actually declined, even against the backdrop of high economic growth. This is the reality,”
says economic expert Akaki Tsomaia.
We asked him to comment on the recent statement by Irakli Kobakhidze, who said that Georgia has recorded the highest economic growth rate in Europe.
Why does this growth not translate into improved well-being for the population if the economy is indeed growing?
“Today, the pace of economic growth in Georgia has slowed, and this is reflected in budget revenue data as well. The government is struggling to execute the budget, and next year’s budget is planned pessimistically. All of this was driven by temporary factors, and no fundamental changes have occurred in Georgia’s economy.
On the contrary, we are drifting further away from the West. Today, the largest share of Georgia’s exports still goes to European countries,”
the economist says.
Batumelebi conducted an interview with economic expert and Professor at the University of Georgia, Akaki Tsomaia.
Mr. Tsomaia, what can you say about Irakli Kobakhidze’s statement that over the past four years Georgia’s economy has grown by an average of 9.8%, the highest rate in Europe?
Let’s start with the claim that Georgia ranks first in Europe by this indicator. Europe consists of many countries. In developed EU countries, economic growth of 3-4% yields far more substantial results than 10% growth in Georgia. EU countries are developed economies, and achieving high growth rates in such economies requires major technological breakthroughs.
The more developed a country is, the larger the technological breakthrough required to achieve high economic growth.
For a developing country, however, 10% economic growth is a completely normal process there is still underutilized economic potential and relatively modest investment is enough to generate high growth rates.
This is basic economics, which unfortunately Mr. Kobakhidze does not seem to understand. He does not understand that a developing country should not be compared to a developed one in terms of growth rates. For example, 2–3% economic growth in Germany is effectively equivalent to 10% growth in Georgia.
What explains the fact that this economic growth does not improve people’s lives? Batumelebi also conducted street interviews, where citizens unanimously said that life has become more expensive and difficult.
Economic growth must be reflected in society and in people’s lives. People should feel that their incomes have increased. If we look at the statistics, we see that average wages appear to be rising, but a deeper look shows that for about 65-70% of the population, nominal income remains below 2,000 GEL around 1,500 GEL.
This confirms that the majority of the population does not benefit from economic growth. Income is distributed very asymmetrically only a small segment experiences a significant increase. For most people, nominal wages do not change, and the median wage remains low (although it has not been published for the last year, it is clearly still low).
Taking nominal wages into account, and considering that inflation has been substantial in recent years, real incomes have not increased but have declined even amid high economic growth. This is the reality.
It is important to analyze what caused economic growth over the past 3–4 years.
There are so-called short-term and long-term factors. Let us call long-term factors fundamental factors. These include, for example, our position in the international market—what we can offer based on our resources. Can we provide something significant or distinctive to global markets, such as new technologies or innovative products?
In this regard, nothing has changed over the past four years. On the contrary, we are gradually moving toward greater isolation.
Short-term factors, on the other hand, are those that influence the regional economy, including external factors, which can be either positive or negative. For example, from 2013 to 2018, negative external economic factors affected Georgia’s economy. If you recall, the ruling Georgian Dream party blamed the depreciation of the lari on external factors.
After Russia invaded Ukraine, positive regional factors emerged, which also positively affected Georgia’s economy. Georgia became a much more attractive trade and transit country than before.
Another factor was the large influx of non-residents into Georgia. Tens of thousands of financially well-off individuals entered the country and began doing business here. Presumably, agents also arrived, but many people also came who started producing real goods and services.
They also increased demand in the real estate market, which led to rising property prices and rents, and increased demand for goods and services.
In addition, automobile re-export through Georgia increased significantly. Re-export figures grew astronomically. Everything I have listed translated into economic growth, which, combined with high inflation, resulted in strong growth in 2022 and 2023.
Employment in the real estate sector increased during that period someone who was unemployed gained some income. This growth was also partially felt in the construction sector: sales of construction materials increased, and incomes rose for some people. However, the lion’s share of income went to cement producers, business owners, and developers.
So mainly business owners benefited?
Most likely, yes. According to statistics, average wages in these sectors did not increase significantly. There was growth, but not substantial growth. Developers’ incomes increased the most. Those who rented out property also saw income growth it is not the case that no one benefited.
Certain segments of society did benefit from this economic growth, including those involved in automobile re-export. However, many foreign companies registered in this sector, increasing competition for Georgian entrepreneurs and sharing part of the income.
Overall, these benefits did not reach the majority of society. Many people’s nominal incomes did not increase, which means real incomes effectively declined, especially given the significant inflation from 2022 through 2025.
Inflation remains high, though declining, and the Georgian Dream government maintains exchange rate stability. How is this achieved?
The exchange rate is stable because capital outflows have not yet been observed. On the contrary, since 2022, non-residents have brought large amounts of foreign currency into Georgia. The government itself said that, for example, one currency exchange office converted USD 600 million.
This is a massive event for Georgia’s economy. There is, of course, suspicion that money laundering was taking place and that large volumes of foreign currency entered the country. This clearly affected exchange rate stability.
If money was laundered, would this affect economic indicators?
Money laundering means that part of the funds enter the economy. If some portion of that USD 600 million remained in Georgia for example, through real estate purchases the change in capital would show up as a source of economic growth. If the money stayed in Georgia and was used to purchase assets, then it would certainly affect economic growth.
Today, economic growth in Georgia has slowed, and this is reflected in budget revenue data. The government is struggling to execute the budget, and next year’s budget is planned pessimistically. Officials say revenues will grow by about 5% in nominal terms. This raises questions about their own forecast that real economic growth will reach 5%. In other words, they themselves are pessimistic about the future.
All of these were temporary factors, and no fundamental changes have occurred in Georgia’s economy. On the contrary, we are drifting further away from the West. Today, the largest share of Georgia’s exports still goes to European countries.
If we exclude short-term factors and look at our long-term future, we see growing dependence on Russia, alienation from Europe, reduced access to European technologies, and the suspension of visa liberalization. From this perspective, the long-term factors responsible for economic growth will gradually worsen the economic situation.
For example, our natural gas contract is expiring. We must negotiate with British Petroleum and the Azerbaijani government, but we do not know how this process will develop. The alternative is Gazprom, which would gladly supply gas. If energy prices rise and our dependence on Russia increases significantly, this will certainly not benefit the economy.
Therefore, I cannot say that this government can maintain a strong economy in the long term especially given its actions. Isolation will not help the economy in any way. Temporary factors always fade, and we are left facing what we are truly capable of and what our real potential is.
Should we remain a raw-material-producing country exporting non-ferrous metals, wine, and fruit or can we, for example, export education, enter high-tech sectors, and provide new products to the international community that would raise our standard of living?