Georgia

Aid to Georgia: Transparency, accountability and the JNA

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Overview

This report by Transparency International Georgia provides an overview and comment on the 3.25 billion dollar Joint Needs Assessment (JNA) for Georgia. The draft JNA was compiled by a joint assessment mission of the World Bank, European Commission and United Nations that visited Georgia during two weeks in September 2008.

The JNA examines the impact of the August 2008 war, assesses resulting needs, and presents a plan for recovery priced at 3.25 billion dollars in external donor support over the coming three years. While the JNA also considers humanitarian needs, its overall scope is much broader, with a strong focus on ensuring macroeconomic stability.

The JNA formed the basis for the international donor conference on Georgia held in Brussels on 22 October 2008, at which donors pledged 4.55 billion dollars in support - over a billion dollars more than requested. Donors habitually pledge more aid than they eventually provide. Therefore, this 4.55 billion pledge is unlikely to be actualized in full, particularly in the context of the ongoing global financial crisis.

To date, only an abridged and strongly edited version of the JNA has been made public. This report is based on the full version, which TI Georgia has obtained through unofficial channels.

Impact of the August War

While the actual physical damage caused by the war is very limited, the economic fallout is considerable. After years of double-digit growth, the Georgian economy is expected to contract during the second half of 2008 and the first quarter of 2009. According to JNA estimates that assume full donor funding and appear overly optimistic, growth will resume thereafter, with total growth in 2009 projected at 4% (compared to pre-war estimates of 8-9%). Even according to these optimistic calculations, GNI per capita by 2011 will be $660 short of pre-crisis projections.

Before the war, growth was driven chiefly by foreign direct investment and expanding bank credit. Since the war, foreign direct investment has plummeted. Banks suffered a severe liquidity crunch, and while a total collapse of the banking system seems to have been staved off with the help of massive external intervention, credit provision is still far below pre-war levels. Construction, real estate, retail and tourism - all key sectors in the pre-war boom - have been particularly hard hit.

According to the JNA, "the deceleration of the economy will inevitably lead to an increase in poverty and unemployment." Up to 100,000 Georgians are expected to lose their jobs in the near future. (This figure was edited out of the JNA version released to the public.) Between now and 2010, poverty levels are projected to rise from 23.6% to 25.9%, and those already poor may slide even deeper into poverty.

As the economy takes a nosedive, the government will be able to collect less revenue, constraining its ability to spend and invest just as rising social needs place greater demands on the treasury. Therefore, Georgia faces a huge budget shortfall, with the danger of public spending being slashed just as private sector investments dry up.

Heightened social needs include the up to 30,000 people who have become long term displaced as a result of the war. A further 34,000 internally displaced persons (IDPs) will only be able to return to their homes next spring.