The pace of economic recovery in Georgia has been affected by post-election street protests and re-imposition of lockdown measures amid surge in COVID cases. The government announced a fresh support program for affected businesses and households in the amount of GEL 1.1bn. We note that a reduction in virus cases recently and minimal changes in the new cabinet will help to improve sentiments and minimize delays in decision making. In 2021, the fiscal policy continues to have a central role in stabilizing the economy with deficit set at 7.6% of GDP, and capex at 8.1% of GDP. We note that the deficit funding structure is also GEL supportive with government planning to rollover Eurobond in 2021, preserving international reserves. We see recovery in tourism as a key factor for GEL in 2021, otherwise we do not rule out the rate increase from NBG to support the currency along with FX interventions. We expect economy to rebound to 5.0-5.5% growth in 2021 assuming tourism to recover to 50% of its 2019 level; without recovery in tourism we expect growth at around 3.7% in 2021. Notably, the new cabinet of Prime Minister Gakharia faces a confidence vote this week, as well as a 2021-24 government program – “Building of a European State”.
