COMPARATIVE RECOVERY

The South Caucasian countries have significant differences not only in cultural and religious terms, but also in the nuances of their political paths of development, and socio-economic organisation. This largely affects the actions of their governments taken to overcome the pandemic crisis and determine the future vector of development.

Coronavirus continues to force many countries to make great efforts to combat the disease and its consequences. The same processes are ongoing in the South Caucasian countries. At the same time, the positive experience in overcoming the pandemic and its consequences, mass vaccination of the population, measures to prevent the economies from total lock-down has been recorded in our region as well.

Azerbaijan is recovering steadily

Obviously, Azerbaijan is the leader of the economic recovery in South Caucasus. Its accumulated reserves, and stability of the financial system have collectively played an instrumental role in buffering the negative consequences of the global economic and pandemic crises. Therefore, as soon as lockdown restrictions were eased and global oil prices stabilised, Azerbaijan’s economy began to recover and is gradually approaching the pre-pandemic level. The price of oil set in the budget of Azerbaijan for 2021 is $40 per barrel, although the average price of Azerbaijani oil in January-July 2021 was $59.1 per barrel. In August-early September, it has varied between $70-75 per barrel and above.

Recently, Azerbaijan’s Minister of Economy Mikayil Jabbarov said that despite the forecast of foreign partners on the 1,7% growth of Azerbaijan's GDP in 2021, the actual growth rate in January-August already reached 3.6% and 5,5% in the non-oil sector. This was a reasonable evidence for the government to raise its annual forecast rate to 4%.

It is very important that the reason for such optimistic statistics was, among other things, the growth of investments in fixed assets by private companies. In general, during the seven months of 2021, the state budget of Azerbaijan recorded a surplus of ₼367.7m, while the volume of non-oil exports in January-July for the first time reached $2b and increased by 37% compared to 2020.

In short, the minister also confirmed that the Azerbaijani economy is recovering from the consequences of COVID-19 “at a faster pace than expected”.

Rapid restoration of Garabagh, including the construction of roads, airports, power plants, as well as the restoration of cities and villages, shows that Azerbaijan’s economic potential is quite enough to accomplish the tasks set by the government.

Amid stable macroeconomic indicators, Azerbaijan, apparently, is not going to change the current exchange rate of the national currency.

Official foreign exchange reserves of the Central Bank of Azerbaijan (CBA) as of August 31, 2021 increased significantly, exceeding $7b, while the total external debt of Azerbaijan as of July 1, 2021 reached $8.6b, i. e. only 18.2% of GDP.

Georgia: double-digit growth rate vs. heavy external debt

Georgia also shows quite positive indicators of economic growth, reaching double-digit levels during the seven months of 2021. Thus, GDP growth was 12.2% compared to 2020, which is even more impressive, meaning it grew by almost 6% compared to seven months of 2019. “This means that the recovery and development of our economy continues. We are confident that by the end of 2021, we will have a fairly good indicator, as we expect a double-digit growth rate,” Georgian Minister of Economy and Sustainable Development Natia Turnava said.

However, the situation with the national debt is far from the best. Currently Georgia's total external debt exceeds $8b, of which $7.5billion is the share of the Georgian government. It may seem as insignificant figure, but it is about 60% of the Georgian GDP, meaning the rate is slowly reaching a dangerous line for the national economy. Although the country is trying to pay debts regularly, S&P Global predicts that by the end of 2021, the total debt of the government and state-owned enterprises of Georgia may reach 69.5% of GDP, which is 5.9% more than at the end of 2020.

Meanwhile, a recent report from the International Monetary Fund (IMF) said Georgia’s economy will return to pre-pandemic levels this year. IMF noted that the economy is returning to normal as a result of stable growth in remittances and export performance and an impressive boost from the recovery in tourism.

However, the report also notes that in light of the current economic recovery in Georgia, it is necessary to maintain strong vaccination rates, reduce budget deficits and debt, cancel crisis support measures and tighten refinancing rates in the event of high inflationary risks. Also, IMF experts call on Georgia to strengthen structural reforms, including through the implementation of policies that will address the problem of widespread unemployment.

Armenia: dreams and realities

But the worst in terms of external debt is the situation in Armenia, where the consolidated debt in eight months reached $9b and 76% of this amount is in foreign currency. The ratio to GDP also exceeded the dangerous line of 60%. But the worst thing is that Armenia's foreign exchange reserves cannot cover the debt in any way. As of today, Armenia has only $3.1b in savings... Just for reference (as comparison is impossible): as of September 1, 2021, Azerbaijan's foreign exchange reserves reached $53b, whereas the external debt was just $7.8b.

Therefore, any optimistic forecasts, expectations of double-digit GDP growth voiced by the Armenian Minister of Economy cannot refute the above statistical data - Armenia will not get out of the debt hole for a long time.

At the same time, the Armenian State Statistics Committee published official data for January-July 2021. Thus, despite the 5.2% growth in economic activity recorded in the seven months of 2021, this indicator increased by only 0.2% in July. This means that Armenia’s growth rate has decreased several times. Therefore, local economists believe that the economy minister's forecast of a double-digit economic growth was just another marketing move to attract the popular attention.

“Tax collections in Armenia have increased, but there is still no qualitative economic growth in the country,” economist Suren Parsyan stated. In January-August 2021, tax collections in Armenia reached about $1.9b, or 11% higher than in the same period of 2020.

Investments in Armenia are also at a low level, reaching only $33m last year. “This shows that revenues are growing by inertia, due to inflation and capital construction programs. In addition, since the beginning of the year, the government has increased the national debt by almost $1b. These credit injections into the national economy can help only for a couple of years, no more,” Parsyan said.

This year Armenia also had high inflation rates (5.7%), which increased the prices of food and non-alcoholic drinks by 7.7%, alcoholic beverages and tobacco products by 9.1%, non-food products by 7.9%.

In Armenia, the situation is getting worse because the country’s political leadership continues to pursue an aggressive policy towards the neighbouring Azerbaijan and Turkey. This contributes to further isolation from the most important economic processes and projects in the region. This makes the country's investment attractiveness rather dubious. Investor do not rush to invest in Armenia amid the unrealistic plans of the Armenian government seeming increasingly illusory.

Foreign trade balance

The total trade turnover of the South Caucasian countries in 1H2021 reached $25.7b with 57% of this amount being the foreign trade turnover of Azerbaijan, 29% of Georgia, and 14% of Armenia. At the same time, Georgia and Armenia have a negative balance in foreign trade, reaching 39.2 and 61.5%, respectively, while Azerbaijan has a surplus of 26.4%.

Copper remains the main export commodity of Armenia. In spring 2021, the price of copper on the London Metal Exchange rose to the highest level in ten years - $9,750 per ton. The reason was the recovery of the global economy after the pandemic, which led to the overall growth of metal markets.

In Georgia, there is an increase in tourism income. Tourism is one of the leading sectors of the Georgian economy. Georgia's revenues from international tourism in January-June 2019 reached more than $1.5b, including $340.5m in June.

For Azerbaijan, the oil sector acted as the main driver of economic growth. Oil prices were in a high price range, which made it possible to reach a positive balance of trade. So, in seven months of 2021, Azerbaijan's foreign trade turnover increased by 17.7%, reaching $17.7b, while the foreign trade surplus reached $5b, which is 57.7% more than in the same period last year. According to experts, along with a positive impact on financial stability, this is a chance to open new jobs, to stabilise foreign exchange reserves, and to service the public debt. And most importantly, the balance contributes to the smooth implementation of large-scale infrastructure projects, particularly, in the liberated lands of Garabagh and to carry out large-scale construction works there.

It is also worth mentioning that the share of exports of non-oil products in Azerbaijan has grown significantly. Moreover, this seems to be a long-term dynamics. We can assume that in Azerbaijan's foreign trade, oil and gas will gradually be replaced by products with high added value. This is the goal of the long-term strategy of the country's economic development.