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At the plenary session of the Parliament of Georgia, the Parliamentary Minority MP, Mikheil Machavariani, talked about the country’s worsened external trade balance. He pointed out that the negative trade balance reached its peak in the first two months of 2015, amounting to USD 786 million. The external trade turnover decreased by 9% and exports decreased by 26% as well. As the MP inferred, these negative trends in the country’s external trade mean that a significant part of the population has become poorer.

FactCheck

looked into the accuracy of this statement.

According to the data of the National Statistics Office of Georgia, Georgia’s negative external trade balance amounted to USD 786 million in January and February 2015 which is 13% more than it was in the same period of the previous year. Of this sum, USD 324 million comes on exports whilst the share of imports is USD 1,109 million. Exports decreased by 26% as compared to the same period of the previous year whilst imports decreased by 2%.

Chart 1:

 Georgia’s Foreign Trade from 2004 to 2014

image001 Source: National Statistics Office of Georgia

As the chart makes clear, Georgia’s external trade grew for a period of several years. The exception was 2009 when, in the period following the war, the country’s external trade turnover decreased significantly. Hence, the part of the MP’s statement when he says that the 2015 data are an absolute record is inaccurate as Georgia had a much bigger shortfall in external trade in 2009 whilst exports decreased by 26% in January and February 2015 (exports by 31% and imports by 25%).

In addition, it should be pointed out that the economic processes in the region also had significant influence upon the decrease in external trade in 2015. FactCheck wrote

about this issue earlier as well.

Georgia’s external trade balance has always been negative due to our high dependency upon imported goods. A negative trade balance is no cause for alarm if both exports and the external trade turnover are increasing. The growth of import means that the demand on widely used products is rising in the country which usually indicates the growth of the population’s income. In addition, the negative trade balance has always been compensated by the income from service exports (tourism, international shipments), money transfers from abroad and foreign investments which facilitated the stability of the national currency. This year, a decrease was observed in almost all points of the balance of payments. Money transfers, which were among one of the main sources of foreign currency for Georgia, went down by 29%.

It should be pointed out that the decrease in imports was mainly due to the depreciation of GEL which made foreign products more expensive for the country’s population and, therefore, decreased the demand on imported goods.

According to the report published by the National Statistics Office of Georgia, the average level of prices in March 2015 was 1.2% higher than that of the previous month whilst the annual inflation amounted to 2.6%. The inflation rate which was calculated by the National Statistics Office represents the weighted average of the price changes on different types of products. Hence, a decrease in prices on certain products causes the consumer price index to reduce as well. For example, the prices of transport decreased by 6.6% in March 2015 which caused the annual inflation rate to go down by 0.79%. Prices went up by 0.3% in April. Overall, the inflation amounted to 4% from the start of the depreciation of GEL (November 2014) to April 2015.

Groceries and healthcare occupy the largest part of the consumer basket and the prices in these fields increased by 3.7% (groceries and non-alcoholic beverages) and 6% (healthcare) as compared to the previous year. The growth of prices in this category of products decreased the purchasing power of the lower income portion of the population in particular as the largest part of their income is spent on these products.

The real growth of the GDP amounted to 4.8% in 2014. Georgia’s economic growth rate went down at the end of 2014, especially when the country’s economy grew by only 1.8% in the last quarter of the year. Exports decreased by 2% in 2014. The trend of a decrease started in August and exports went down by 16.5% (USD 237 million) by the end of the year. It should be noted that exports have a significant influence upon the GDP of our country. The share of exports in the country’s economy varies from 35% to 45%. In addition, it should also be noted that about 50% of Georgia’s economic growth was due to the growth of exports. For example, 2013’s economic growth was mainly due to the growth of exports. A large part of the country’s income is amassed owing to exports and, of course, a trend of decrease negatively affects the incomes of the majority of the population.

It should be pointed out that the trend of decrease in external trade resumed in March 2015 as well. Georgia’s external trade went down by 10% from January to March 2015. From this amount, exports decreased by 28% whilst imports decreased by 3%.

Conclusion

Georgia’s external trade decreased significantly in January and February 2015. The decrease especially concerned exports (26%) whilst imports went down by just 2% which was mainly due to the changes in the exchange rate of the national currency. It should be noted that a bigger shortfall in external trade was recorded in 2009 only, after the war, when the external trade decreased by 26% in January and February (exports decreased by 31%, imports by 25%).

Exports make up a large part of the Georgian economy. The share of exports in the economy varied from 35% to 45% in the past years. Hence, the trend of a decrease in exports causes the income of the majority of the population to go down as well. In addition, since a large part of the products in Georgia are imported the prices on imported goods (especially groceries and medications) increased due to the depreciation of the national currency and a decrease in the purchasing power of the population.

FactCheck concludes that Mikheil Machavariani’s statement is TRUE.
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