Money Transfers to Georgia Increased

The FINANCIAL — Despite reductions in the volume of FDI and external merchandise trade of Georgia, money transfers to the country from abroad have increased. In the first half of 2013 the volume of money transfers to Georgia increased by 6% in comparison with the same period of last year. The total amount of money transferred to Georgia from January to June of this year was USD 668,970 thousand.

The volume of FDI reached USD 226.2 million in the first quarter of 2013, down from USD 269.4 million in the same period of the previous year.

According to the preliminary data of Geostat, the external merchandise trade (excluding non-organized trade) of Georgia amounted to USD 4,713 million from January to June 2013, 3 percent less than the previous year.

In 2012 Georgia received the largest volume of money transfers of the last five years. The total amount of money transfers in 2012 was USD 1,334,513 thousand; the sum being USD 66,387,000 more than it was in 2011.

“The remittance growth trend will continue in the second half of 2013 because the economic growth forecast does not allow for optimism,” Giorgi Machavariani, ISET Policy Institute Research Fellow, told The FINANCIAL. “Remittances are factors of economic conditions (real GDP growth, price changes, unemployment etc.), the difference between the interest rates, investment climate conditions, exchange rate regime, social and economic situation of the country’s average household,” Machavariani explained.

In his words, the reduction of real economic growth caused an increase of cash inflow in Georgia. “It negatively affects households. The differences between investment environment and interest rates are two other factors that are of importance,” he said.

High interest rates on deposits in Georgia are considered another reason for the increase in remittances this year. “Interest rates on deposits and credits are relatively high in Georgia compared to in other countries. For example, whereas in Georgia the average interest rate on deposits is 8%, a similar rate in the U.S. is 1%, in Italy – 1.5%, and in Greece – 3.6%. This fact may be a significant factor in the growth of cash flows,” said Machavariani.

“Domestic investment is reduced. It is linked to political expectations. The volume of deposits is increasing at a high rate. This indicates that residents (individuals and firms) are in standby mode, and therefore prefer to keep their finances saved in deposits rather than investing them. However, it should be noted that only a small portion of remittances are financing domestic investment. This significantly weakens the argument that the investment climate affects cash flows,” said Machavariani.

After the change of government in Georgia, experts expected the volume of money transferred from Russia to increase as a result of recent improvements in the political and business relations between the two countries.

The results of the past six months, however, have shown only a 5% rise in money transfers from Russia to Georgia. Machavariani does not consider this figure to be significant growth.

“Over USD 750 million is transferred annually from Russia to Georgia. Considering these figures, an increase of just USD 18 million, or 5%, cannot be considered significant growth. The reason is that at present Russian economic growth exceeds Georgian real economic growth. Of course, the improvement of political relations is an important factor,” Machavariani said.

After Russia, Greece, Italy, the USA, Turkey, Ukraine, Spain, the UAE, Israel, Germany, Kazakhstan and Azerbaijan lead the list of countries from which more than a billion USD has been transferred to Georgia.

On the basis of a national census conducted in the Russian Federation in 2010, the number of Georgians living in Russia amounts to 170,166.

Global research company Gallup, however, estimated that the number of Georgians working illegally in Russia ranged from 333,000 to 1 million in 2006.

According to the country profile of the International Organization of Migration, the number of Georgian migrants in Greece in 2007 was 13,791.

“Greece is experiencing an economic recession. The country’s GDP is decreasing by 5-6%. However, the cash flows from this country have significantly increased this year, by about 18%. Georgian emigrants in Greece might not trust Greek financial institutions anymore, and are therefore transferring their financial resources to Georgia,” said Machavariani.