Journal number 2 ∘ Natalia Dzidziguri ∘ Niko Chikhladze ∘
The Challenges of Coronomics in Georgia: Urban Context

10.36172/EKONOMISTI.2021.XVII.02.Dzidziguri.Chikhladze

Resume: In the context of coronomics, when the world is faced with many dangers and challenges, special importance is attached to joint efforts, solidarity and the redistribution of competencies. In this regard, cities can also play an important role in taking measures to combat and prevent coronomics. It is clear that globalization has no alternative, and no country can cope with the COVID-19 pandemic, that the entire world is facing.

Keywords: Pandemic, Coronomics, Batumi Municipality, Regulation Tools, Budget Revenues and Expenditures 

Introduction

        The outbreak of the novel coronavirus (COVID-19) has swept the world since early 2020, prompting the World Health Organization (WHO) to declare it a global pandemic. Events moved quickly - stock market swings were recorded, health systems were on the brink of collapse, countries were taking drastic measures, travel and social interactions were severely restricted, production processes and links in the value chain were disrupted, first in Asia, then in Europe and the United States. ... [Babich ... 2020: 1]

      Until now, economists have studied the impact of the economic crisis on the health care system as a whole, the mental health of the population and the spread of infectious diseases. However, the situation in the world has led to the following problems: the coronavirus and its global spread are already causing a large-scale economic crisis; the coronavirus has practically “turned into an economic pandemic”. [Papava ... 2020: 3]  

      The past period has brought great experience to the world. According to the Interim Economic Report of the Organization for Economic Cooperation and Development (OECD), positive trends have been recently emerging worldwide [OECD, 2021]. 

Coronomics in Georgia: Reality and Challenges.

      Georgia, as part of the world, is also going through the economic crisis caused by the pandemic, and no one knows how quickly it will return to normal life.

      The Interdepartmental Coordination Council chaired by the Prime Minister was established on January 28, 2020 with the aim of effective and coordinating fight against the new coronavirus in Georgia.

      The council has developed a four-step plan to tackle the pandemic. Four priority areas were identified with a responsible person for each area.

• Health care - protection of health and life of the population;
• Economy - management and recovery of the Georgian economy against the backdrop of the global economic crisis;
• Security - protection of citizens;
• Supply and logistics - management of the continuous supply of food to the population. [Government Report, 2020]

      According to preliminary data for 2020 of the National Statistical Office of Georgia, the decline in real GDP compared to the previous year was -6.2% (see Table 1).

One of the first things the coronavirus has hit hard is the tourism sector.

Table 1

Full dynamics of the domestic product in Georgia in 2017-2020

Indicator	2017	2018	2019	2020
GDP in current prices, billion lari	40.8	44.6	49.3	49.4
GDP in constant 2015 prices, billion lari	36.6	38.4	40.3	37.8
Real GDP growth, percent	4.8	4.8	5	-6.2
Change in GDP deflator, percent	8.5	4.4	5.2	6.9
GDP per capita (in current prices) lari	10933.9	11968.0	13239.4	13292.7
GDP per capita (current prices), USD	4358.5	4722.0	4696.2	4274.6
GDP at current prices, USD billion	16.2	17.6	17.5	15.9

 Source: National Statistical Office https://www.geostat.ge/ka/modules/categories/ 23/mtliani-shida-produkti-mshp      

     The damage caused to tourism in Georgia affected both the country's macroeconomic indicators and the socio-economic situation of certain regions and cities.(See Diagram 2,2a)

Diagram 2

Key tourism indicators

 

Diagram 2a

 

     Source: Ministry of Economy and Sustainable Development of Georgia  http://www.economy.ge/?page=ecoreview&s=37        

      

Tourism revenue in 2019 amounted to $ 3,268.7 million, an increase of 1.4%, while in January-September, 2020 it amounted to $ 499,1 million (see Diagram 2), a decrease of 80.7%. According to data for 2019, the share of tourism in GDP was 11.5%, and this sector employed 150,000 people.

       The number of international visitors in 2019 amounted to 7,725.8 thousand people, an increase of 7.3%, according to data for 2020, it amounted 1,513.4 thousand people, a decrease of 80.4%, respectively (See Diagram 2a).     

      The current situation convinced us that tourism is the most sensitive area in the event of force majeure.

      According to the National Statistical Office of Georgia, in 2020 Georgia's foreign trade turnover amounted to $ 11,347.7 million, which is 14.8% less than the corresponding indicator of the previous year: exports decreased by 12% and amounted to $ 3,342.1 million, while imports decreased by 15.9% and amounted to 8,005.6 million US dollars. Georgia's negative trade balance in 2020 decreased by 18% ($ 1,056 million) and amounted to $ 4,663.4 million. [5]

      The COVID-19 epidemic has had devastating impacts not only on tourism, health care, foreign direct investment and remittances, but it has already reached labor markets around the world as a result of economic shocks [ILO monitoring, 2020].

       For the tourism sector alone, the Georgian government has implemented three stages of anti-crisis assistance with a total budget of 200 million GEL, which implies the abolition of property tax for the tourism industry in 2020 - 45 million GEL, the exemption from income tax for the tourism industry and the deferred payment - 90 million GEL, the subsidizing hotel loans - 60 million GEL and the support for travel companies (3000 hotels) and guides - 5 million GEL. [7]

      According to the government's anti-crisis plan for 2020, the citizens of Georgia, who were left without work, were provided assistance in the amount of 200 GEL within 6 months; an exemption from income tax was introduced; a refundable assistance in the amount of 300 GEL was provided for the self-employed; communal expenses were also subsidized. Assistance was provided to socially unprotected layers of the population, in order to care and support citizens, each child, including children of 17 years old, received assistance in the amount of 200 GEL.

      Expenditures on the prevention of the virus spread and health care increased by 345.0 million GEL; the support for the agricultural sector increased by 139.0 million GEL; there was an additional VAT refund, etc. [8]

     It should be noted that at the initial stage of the pandemic, Georgia achieved some success in the fight against COVID-19, which is confirmed by many international assessments (The Telegrahp, The Washington Times, The Foreign Policy), EURACTIVE'S Reporting, the assessment of the current states of Georgia "GEORGIA TODAY", FOX NEWS, etc. [19-22]

     Given the difficult situation created by the global COVID-19 pandemic, the decision of the Georgian government to return Georgian citizens, who remained abroad due to restrictions imposed by foreign countries, and provide assistance on the spot deserves a special attention as well. According to the Ministry of Foreign Affairs, 22,862 citizens returned to Georgia, and 23,296 citizens abroad were provided with all the necessary assistance. [9]

      In the fight against COVID-19, some companies operating in Georgia have expressed a desire for solidarity with the state and the allocation of financial resources. To implement this private sector initiative, a corresponding platform was created in the office of the Business Ombudsman of Georgia, within the framework of which the StopCov Foundation was created and every company, like any citizen, can contribute to the fight against the virus. According to the data of April 13, 2021, 138 351 872 thousand GEL were transferred to the StopCov Fund. [10]

      Given the uncertainty surrounding the coronavirus crisis, it is difficult to argue that economic stimulus for the government can lead to economic recovery. Most likely, in the current situation, people will continue to be focused on providing basic necessities, food and medicine, what, in turn, is characterized by a high dose of imports on the example of Georgia and, as a result, leaves the country in the same vicious circle. [ Papava ... 2020: 8]

Problems of Coronomics: on the Experience of Batumi.

     The scale of the crisis is growing rapidly and affects both central and municipal levels.

A number of types of economic activities were limited by a decree of the Georgian government, which, in turn, slowed down economic processes and, as a result, led to a reduction in tax and collection revenues [11].

    The self-governing cities of Georgia, within the framework of their powers, have carried out a number of activities in the difficult conditions caused by the pandemic of the virus (COVID-19).

     Actual budget revenues of the Batumi Municipality for 2020 amounted to 142 167.5 thousand GEL, which is 100.8% of the planned revenues for 2020. Income received in the form of taxes is 62,478.6 thousand GEL (43.9% of income). [12] 

  Table 2

Dynamics of the actual budget revenues

of the Batumi Municipality (thousand GEL)

Source: www.batumi.ge

    The dynamics of Batumi's budget has been grown lately. (see Table 3) As for the revenues of the Batumi municipality, the tax revenues have decreased, other ones have decreased due to a decrease in economic activity and benefits (fees, permits and other revenues) established by the municipality.

   In particular, the decline has occurred in the following directions:

• 952.7 (thousand GEL) to mobilize cleaning fees;

• 30375.5 (thousand GEL) to mobilize payments for the gambling business;

• Decrease in income from fines and sanctions 320.9 (thousand GEL);

• Income from non-financial assets 12,589.6 (thousand GEL).

     Tax breaks for firms, individuals and households, tax holidays, and various counter-cyclical tax policies are also driving tax revenues. Due to the decline in economic activity and tourist visits, there is also a downward trend in local taxes and fees.

     Only in the 3rd quarter of 2019 (the so-called "high season"), the number of foreign visitors to the Autonomous Republic of Adjara amounted to 26.9% (376.3 thousand people), and accordingly, in the period after the first quarter of 2020, tourists did not enter the country at all. [13]

     Against the background of a further decrease in incomes of cities (regions) due to a decrease in economic activity, employment and consumption, it is natural that such a situation especially affects the taxable profit of enterprises, including VAT.

      In fact, all programs and measures, aimed at economic recovery, are designed to ease the pressure on firms and households, which would be unthinkable for them without the introduction of various tax incentives. This, naturally, will reduce tax revenues [Chikhladze ... 2021: 106-116].

       In the cities of different countries, there has been observed a sharp drop in income. In cities with small and extremely open economies, such as Georgia, this is likely to be particularly sensitive. First of all, revenues from basic taxes will be reduced. As a rule, the main income of local governments is often determined by the activities of the current year (for example, taxes on income, profits and capital appreciation). Therefore, in 2021, we should expect much more difficult situation. [Chikhladze, 2021: 136]

      In terms of payments, administrative, cultural, sports and other similar expenses were released from the budget of the Batumi Municipality during the pandemic.

      The deterioration of the situation required inevitable financial assistance from the state. It should be noted that during 2020, 60,777.6 thousand GEL were received in the budget of the Batumi Municipality in the form of financial assistance.

     29 785.0 thousand GEL was received from the state budget of Georgia in 2020 in the form of a special transfer, and 4 789.0 thousand GEL - as one more particular transfer. Financial assistance received from the republican budget of the Autonomous Republic of Adjara amounted 26 203.6 thousand GEL, which is 42.8% of the total financial assistance to the local budget. [12]

     Based on the above, in 2020 the Municipality of Batumi gave priority to financing the measures necessary for the development of the city and related to capital / construction work on infrastructure, rehabilitation and operation, as well as improving the health and socio-economic situation of the city's residents. It can be said that, despite the pessimistic forecasts, the role of the fiscal guest and, as far as possible, monetary policy will be critical to mitigate the negative impact on the economy.

     To reduce risks to public health and the spread of infection, the government began to create quarantine zones to temporarily isolate individuals at risk. More than 300 hotels located in the capital and different regions of the country were involved in the creation of quarantine zones. [Government Report, 2020]

      In addition, the existence of the quarantine zone project contributed not only to the effective fight against COVID-19, but also to financial support for representatives in such areas as transport services, catering and food distribution, production of local agricultural products, etc.

      In total, 60 quarantine zones were mobilized in the Autonomous Republic of Adjara, where up to 70 thousand people underwent mandatory quarantine. The creation of quarantine zones was an unprecedented decision. "Georgia's experience in combating the spread of the epidemic is recognized as one of the most successful in the world" - such a high assessment was given to the situation in Georgia at the 112th meeting of the Executive Council of the United Nations World Tourism Organization (UNWTO) held in Georgia on September 17, 2020. [16]

      In order to prevent the spread of coronavirus and overcome the difficulties caused by the pandemic, the following programs were implemented in the republican budget of Adjara for 2020:

1. "Measures to prevent the possible spread of the new coronavirus" - 23,760,000 thousand GEL. The goal of the program was to equip quarantine zones, i.e. to provide visitors arriving in Georgia with hotel services, food, disinfection, transport services from the customs checkpoint to a special quarantine zone and after the end of quarantine to the place of residence, etc.

 2. "Equipping and operating a 170-bed multidisciplinary clinical hospital in Batumi and a program to provide personal protective equipment for risk groups" - 7,671,600 thousand GEL. The aim of the programme was to protect at-risk groups from infection with a new coronavirus (COVID-19) and to provide health services to the infected population. [17]

       Within the framework of the emergency budget, in order to overcome the pandemic and support the population, the Ministry of Agriculture of the Adjara Autonomous Republic took the following measures:

v  Under the Ministry's programme, agricultural land owned by farmers, with a total area of 1,400 hectares of land, was cultivated free of charge in all municipalities in the region; as part of ensuring the food security of the region, vegetable crops (cucumbers, tomatoes, eggplant, pepper, zucchini, etc.) were grown in the Gvara Greenhouse of the Agroservice Center, and parts of the population of the region were distributed free of charge;

v  Research and monitoring of prices for basic food products (flour, sugar, buckwheat, butter, rice, eggs, etc.) were carried out in 19 large food supermarkets in the region;

v  A Ministry hotline was established; agricultural markets in the region were monitored, etc. [17]

Coronocrisis and related processes in the fields of medicine and economics, logistics and management as a whole have clearly shown that: 

Firstly, state institutions must be strong, adequate and efficient in their activities; they must have an adequate plan for the development of several scenarios and resources for the fastest possible response.

Secondly, the state should have sufficient reserves - both for medicines and for basic necessities and food, both in emergency and normal conditions, and for this it is necessary to significantly strengthen control over the formation and use of these reserves.

And thirdly, we share the opinion of Georgian scientists that the institutional responsibility of the state should be based on an appropriate institutional and organizational structure, which will not only control the above, but also be a body for the prevention of processes, as well as their management and prevention of a crisis in case of force major circumstances. [Archvadze, 2020]. 

Conclusion

      Globalization has no alternative, and no country (including the United States) and no international universal organization will be independently able to cope with the COVID-19 pandemic, that the entire world is facing.

      Georgia needs to understand the positive and negative international experience not only in the field of health care, but also in the management of the economic crisis.

     The main task is to overcome the crisis, caused by the coronavirus epidemic, in order to minimize the damage done to the national economy, and to develop special programs to stimulate economic recovery in the post-crisis period, so that the country can get out of this difficult situation with minimal human and economic losses.

      It is quite promising to support local production and it is especially attractive to produce import substitute products. It is necessary to diversify and strengthen the economic profile of the city, so that we do not depend on only one direction (tourism and services sector).

It is important to overcome the pandemic by pursuing a successful vaccination process, as well as improving the investment environment in parallel with the fight against the pandemic, in order to offer investors the right conditions on site.

     We think that free trade agreements with Georgia's main trading partners, such as the European Union and China, will also help attract foreign direct investment and contribute to the country's development.

      We consider it possible to create a single center for reforms, which will unite both the needs of different ministries and their capabilities, in order to provide an agreed long-term development plan.

      Particular attention should be paid to young people and those with low qualifications to avoid the risk of being unemployed in the long term. For this, the state must provide assistance in maintaining jobs and business.

     We think that the crisis has strengthened the role of the state, which remains the last hope in the current difficult situation for the population, because only the state can withstand the crisis with all the tools at its disposal. 

Literature references:

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