Hardly a Georgian dream. Confronting COVID-19 in the midst of an election year
Like much of the world, Georgia has experienced the first half of 2020 in a way that could not have been predicted. The ruling Georgian Dream party faced the difficult choice of sparing economic losses or imposing strict regulations to maintain public health. The COVID-19 virus, while largely curtailed in Georgia by decisive action, has left many economic woes in a country that will only be intensified by an imminent election.
This year is shaping up to be unlike anything that could have been anticipated. This was a year that many expected to see dominated by Britain’s withdrawal from the European Union, the Summer Olympics in Tokyo and a highly-contested US presidential election in the autumn. Instead, the first six months saw a global shutdown and subsequent economic and health crisis caused by COVID-19. The country of Georgia, which anticipated ten months of mud-slinging and campaign promises in the run up to its October parliamentary elections, quickly found itself as pre-occupied as the rest of the world with mitigating the effects of the virus.
September 7, 2020 -
Mackenzie Baldinger
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Hot TopicsIssue 5 2020Magazine
Central Laboratory at the Academician Nikoloz Kipshidze University Clinic, Tbilisi, Georgia, receives the equipment of the PCR laboratory for COVID-19 diagnostic. Photo: IAEA Imagebank (CC) www.flickr.com
However, as the country has emerged and celebrated its successful efforts in avoiding a public health crisis, the government and electorate are once again turning their attention to the coming election and the country’s economic situation.
Precarious position
The current Georgian government, by many accounts, has proven itself successful at stemming the spread of COVID-19. At the end of April, the United Nations Secretary General lauded the efforts taken by the administration. This included the closure of all land and air borders, the shuttering of non-essential businesses and a mandatory curfew and public mask order. In July, the Schengen area re-opened to Georgian citizens and the EU Ambassador to Georgia, Carl Hartzell, praised the “robust” and “early” steps taken by the government, announcing “I could not think of a better place to be right now than Georgia.”
In addition to the approval of international partners, Georgia’s case numbers and the government’s approval ratings present a true success story. At the end of July, the country had reported just over 1,100 cases of the virus and only 16 deaths. A recent study by the Caucasus Research Resource Center (CRRC) found that the Georgian public predominantly supported the early actions taken by the government and that trust in public institutions increased during the first months of the pandemic.
As the country emerged from its first wave of the virus and was freed from many socio-economic restrictions, the public’s attention shifted to the upcoming election and the overall state of the economy. Towards the middle of May, public surveys showed a significant increase in the percentage of people that viewed the economic cost of the government’s restrictions as worse than the actual virus itself. This was not the case in March and April. Reports revealed that the average monthly household income in Georgia almost halved from approximately 350 dollars to 210 from March to May. At the same time, 13 per cent of households reported having no income during the month of May. In addition to lost income, a World Bank analysis shows that Georgia’s economy is set to contract by 4.8 per cent this year, making 2020 the worst year for the economy since the country transitioned from communism in the early 1990s. The credit rating agency Scopes has warned that the country’s high level of dependence on imports and foreign direct investment, as well as high levels of debt held in foreign currencies and a depreciating Georgian lari, have put the country in a precarious economic position.
Given the worsening situation the Georgian Dream government now faces the challenge of maintaining public support in the months leading up to the election. In June the government released its anti-crisis economic plan that proposed an amended budget for 2020 and new initiatives to mitigate the economic impact of the pandemic. The plan was divided into three stages. The initial phase of the economic plan featured generous subsidies and tax breaks, many of which were implemented in March and April. For three months, starting in March, the government subsidised utility bills for 1.2 million families and offered deferment of loan payments. It also offered an 80 per cent subsidy on business loans taken by small hotels and deferred all property and income taxes for businesses related to tourism until November.
The second phase of the Georgian Dream party’s anti-crisis economic plan features a range of social benefits aimed at supporting the population in the short-term. One of the largest expenditures of the new budget is a six month scheme that offers 200 lari (approximately 62 dollars) per month to those that are unemployed, a benefit for which a staggering 350,000 citizens are currently eligible. The government has also offered six months of income tax exemptions for monthly salaries up to 750 lari, as well as a 600 lari allotment for families that are registered as “socially vulnerable.” These social assistance programmes coincide with the implementation of previously scheduled pay raises for certain sectors of the labour force. In the original pre-COVID-19 budget for 2020, the governing party planned to raise salaries for teachers, police officers and some doctors. In addition, it also planned to increase state pensions. These scheduled raises were set to take effect in July and September and were harshly criticised by opposition parties that viewed the initiative as buying votes.
It is no surprise that the additional social benefits announced in the wake of COVID-19 have drawn similar condemnation by the opposition. Representatives of multiple parties, including the European Georgia Party and Lelo, have criticised the government’s lack of plans to stimulate the economy in the long-term and create jobs. The opposition has also highlighted the fact that the six month period of increased social benefits conveniently ends directly after the October parliamentary election.
Balancing the budget
The Georgian Dream government’s raft of social assistance programmes and pay increases have not come cheap. According to the government’s amendments to the 2020 budget, in addition to a projected economic decline of four per cent, the government expects to lose 1.8 billion lari in revenue (approximately 587 million dollars) due to the economic slowdown and implemented tax breaks. Despite the significant decrease in tax revenue, the amended budget reflects an increase in expenditures of 1.5 billion lari (approximately 490 million dollars). The government’s proposed budget amendments present a worrisome increase in spending, with a large portion of funds devoted to short-term social assistance before the election.
The new budget is justifying its increased expenditures and lost revenue through two main sources: assistance allocated from international partners and debt. In the wake of the COVID-19 pandemic, the government announced that three billion dollars had been allocated to help mitigate budgetary shortfalls in the form of loans and grants from international financial organisations like the Asian Development Bank, the German Credit Institute for Reconstruction and the International Monetary Fund. However, despite the outpouring of international support, the government took an unprecedented amount of foreign debt to rectify this year’s budgetary imbalance. The Georgian Dream government had announced in 2019 that it was planning to take a record amount of public debt in 2020, which many saw as a way to fund pre-election programmes that would garner support from the electorate. The amended budget from June shows that the public debt is now predicted to increase by seven billion lari this year, of which 5.2 billion will be foreign debt. This development is concerning for Georgia’s macroeconomic stability.
Not only has public debt increased from 47.5 per cent of GDP to 54.8 in the course of one year, but 77 per cent of it is now foreign-owned debt. Despite the Georgian National Bank’s best efforts to stabilise the lari, it has continued to depreciate in value. This continued depreciation will make foreign debt increasingly expensive for the government and more difficult to maintain. Opposition parties have seized on this downfall in the budget, with one member of parliament from the United National Movement party pointing that “54 per cent of the budget is donated and borrowed funds,” something that did not even happen “during Shevardnadze times.”
October is coming
As the election looms, the government’s rapid expansion of short-term social benefits and dangerously imbalanced budget is leading to concern over the long-term macroeconomic consequences of an economic plan that does not seem to look past October. Despite widespread criticism from the opposition regarding these shortcomings, a recent study by the Caucasus Research Resource Center found that the increased social benefits are receiving widespread support from the public. Furthermore, a poll done by Edison Research in July showed that 39 per cent of respondents are planning to vote for Georgian Dream. With 20 per cent of respondents currently undecided, even a coalition of the United National Movement, European Georgia, and other opposition parties, does not have enough support to defeat the Georgian Dream.
With less than two months until the election, the Georgian Dream government seems to be in a solid position. However, recent criticism from international partners – which is related to an agreement signed by the opposition and the ruling party on March 8th – has the potential to derail the party’s path to success. Before COVID-19 shut down the country in mid-March, the united opposition and the Georgian Dream government agreed to begin the transition to a proportional voting system. This would see 120 parliamentary seats out of 150 allocated based on a proportional vote. The agreement, which was deemed by international partners as a major success, was almost derailed when the opposition accused the government in May of failing to honour part of the agreement by refusing to release three opposition leaders from prison. What would have been a domestic dispute between the opposition and ruling party became increasingly complicated when the Chair of the United States Senate Foreign Relations Committee, Jim Risch, called for both sides to fully honour the agreement, including the “release of political prisoners.”
This charged rhetoric was further intensified in July, when the US House Appropriations Committee further stipulated that the United States may withhold 15 per cent of designated funding for Georgia if the government does not take adequate steps to strengthen democratic institutions and uphold the rule of law. This development may not seem to have direct implications for the election, but it could further complicate the ruling party’s diplomatic relations with strategic partners and add a level of credibility in the eyes of the public to the opposition’s criticism.
Like much of the world, Georgia has experienced the first half of 2020 in a way that could not have been predicted. The Georgian Dream party, like every other national government, faced the difficult choice of sparing economic losses or imposing strict regulations to protect public health. The COVID-19 virus, while largely curtailed in Georgia by decisive action, has left many economic woes in a country that will only be intensified by an imminent election. Massive amounts of spending on short-term social programmes in an effort to temporarily inflate the economy and garner support, is threatening to leave the country vulnerable with unsustainable levels of foreign debt and no real vision of how to stimulate the economy and create jobs in the long run. These measures, however risky long-term, seem to be strengthening support for the ruling party and paving the way towards its victory in October. While the road to victory seems in sight for the Georgian Dream party, the events of 2020 have taught us that a lot can happen in the course of three months and no political party is immune to COVID-19.
Mackenzie Baldinger is a contributing editor with New Eastern Europe and a political researcher focusing on political extremism and populism in Central and Eastern Europe. She has a Master’s Degree in International Relations from Central European University and is currently completing an Erasmus Mundus Joint Master Degree in European Politics at Leiden University.
