Georgia

Georgia - Summary of Joint Needs Assessment Findings

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Prepared for the Donors' Conference of October 22, 2008 in Brussels

SUMMARY OF THE MAIN FINDINGS OF THE JOINT NEEDS ASSESSMENT

Prior to the conflict of August 2008, the Georgian economy was on a strong growth track, with GDP rising by 10½ per cent annually. Rising public expenditures, financed by a substantial increase in the tax to GDP ratio, were being directed at improvements in education and health services and in targeted social assistance for the poor as well as infrastructure. Economic policies were guided by reliance on the private sector for growth in a highly liberal trade, investment and business environment. Also central to government policies were a belief in a small, effective government that formulated policies and financed services with delivery being delegated to the private sector, and an emphasis on high governance standards. The country attracted large volumes of foreign direct investment to sustain growth. Despite high growth, job creation was weak, but poverty had begun to fall.

The conflict dealt a shock to the key pillars of economic growth. There occurred a weakening of investor, lender and consumer confidence, a contraction of liquidity in the banking system, stress on public finances, damage to physical infrastructure, and increased numbers of internally displaced persons.

The government has launched immediate post-conflict recovery activities, nevertheless, sustained success will prove elusive unless international donors provide adequate and rapid financial support to buttress Georgia's own efforts. The JNA has identified the need for donor support in three major areas:

- Support for the rapid restoration of confidence. Georgia will be able to help itself best if economic growth can be re-established so that resources for investment and poverty reduction can be generated internally. Donors can help best by providing resources for the budget to support the counter-cyclical budget policy and thereby ensure funding for critical economic and social needs. Moreover, donors may consider equity, debt or guarantee support to domestic banks so that lending to enterprises and consumers can be re-ignited.

- Support for social needs. The resettlement of the internally displaced and the needs associated with other conflict-affected populations has put an unsustainable burden on fiscal resources. Through support for housing, social protection and other social programs identified in the JNA as well as via budget support, donors can make an important contribution to economic and social recovery.

- Support for critical investments. The JNA has found that certain high value and high yield investments are essential to maximizing recovery prospects - these are discussed as "core investments" in the report. Donor financing for such investments remains essential as a bridge to the period when the private sector resumes investing. Such financing would also help to enhance the economic security of the country by broadening choice in energy and transport.

The JNA proposes that donors extend fresh commitments in the amount of $3¼ billion over a three year period (Annex I).

CHAPTER I. BACKGROUND

1. Context and Purpose. In early August, hostilities occurred in northern Georgia. On August 13, a cease-fire agreement that triggered a staged withdrawal of troops from the territory of Georgia was signed between the parties. Monitors from the European Union have now started patrols in an area north of Gori and adjacent to the administrative border with South Ossetia, Georgia, which contains some 50 villages with an estimated population of 24,000, and is known as the "adjacent areas",the remaining military forces have now begun to withdraw. The European Union-brokered agreement also calls for the return of OSCE monitors to South Ossetia. UN observers are expected to remain in Abkhazia, Georgia.

2. This report - the Joint Needs Assessment (JNA) - responds to a request from the

Government of Georgia for the World Bank to lead a post-conflict needs assessment of the damage and economic loss resulting from the conflict and to develop estimates of the financial assistance required to address the losses and re-establish the conditions for a return to sustained growth.

3. The United Nations Development Group (UNDG) and the World Bank have developed a joint methodology for post-conflict needs assessments (PCNA), and have endorsed it as the framework to be used jointly in these situations.1 Building on the partnership on the same topic with the European Commission2, a needs assessment mission was mounted between September 7-21, 2008.

4. Coverage. The assessment covers the whole territory of Georgia, although the JNA team did not make field visits to South Ossetia because of difficulties of access, nor to Abkhazia given the minor extent of conflict-related damage there. Consequently, a partial listing of the needs in these two regions is presented in the JNA, based on information and data from other parties, such as EC satellite imagery and assessments by the UN system. Once in-depth assessments can be made, the UN may make a separate appeal for these regions.

5. Organization of the Report. The JNA examines the overall impact of the conflict, and needs for early and medium-term recovery based on losses and damages resulting from the conflict, and presents an overall strategy for recovery as well as priority actions and investments.