Markets & Economy

Georgia Leading the Way on Governance

December 19, 2019
After strong reform progress, Georgia is now leading emerging markets peers on governance quality.

Key Points

  • Robust fundamentals are supportive for Georgia’s dollar-sovereign debt.
  • Technical factors are positive as it is unlikely that the Georgian government will issue any more external bonds in 2019.
  • Georgia has a strong track record of prudent macroeconomic policies, structural reforms, and an improving business environment.

Georgia has shown one of the biggest improvements in governance over the past two decades. The 2003 Rose Revolution, which saw the peaceful, pro‑Western change of power in Georgia, was the catalyst for the start of a heavy reform agenda in the country that continues to this day. At T. Rowe Price, our analysts have been monitoring Georgia’s progress and have carried out several on‑the‑ground research trips to see firsthand how wide‑reaching reforms have helped to improve the country’s governance and business environment.  

Fighting Corruption and Simplifying the Tax System

Following the Rose Revolution, one of the first areas the government tackled was corruption. The authorities took a zero‑tolerance approach, and to show their intent, a number of high‑level officials suspected of corruption were dismissed. This anti‑corruption fight came at a similar time to the government’s overhaul of the tax system. Loopholes were closed, and a new, simple code was introduced, which significantly reduced the number of taxes from 21 in 2004 to just seven the following year.1 The government also introduced an electronic tax‑filing system, which not only made it easier to pay taxes, but also helped reduce corruption opportunities. As a result of these changes, Georgia’s fiscal situation improved. For example, tax revenues—which are an important source of finance for government services—more than doubled, rising from 12% of gross domestic product (GDP) in 2003 to 25% in 2008.1

More than 15 years since these first reforms, Georgia continues to make progress in governance, ethical, and social standards. In the 2017 Worldwide Governance Indicators (WGI) from the World Bank published last year, Georgia achieved its highest ever percentile ranking for controlling corruption, beating most of its emerging markets peers and narrowing the gap with developed countries. In other key governance areas that the World Bank assesses, such as regulatory quality and government effectiveness, Georgia has made similar advancements in recent years, a testament to how successful its reforms have been.

Rules‑Based Fiscal Framework

Another key milestone in Georgia’s reform story is the Economic Liberty Act of 2011. This established a rules‑based fiscal framework with three main elements: a ceiling on state debt, a ceiling on the consolidated budget deficit, and a ceiling on general government expenditures. While this framework reduced fiscal flexibility, it provided a strong anti‑cyclical and institutional anchor to government budgets, and the result has been sustained low fiscal deficits and a stable government debt‑to‑GDP ratio.

Risks Roughly Balanced Ahead

Governance is one of the key areas that we assess when conducting our research. In the case of Georgia, significant progress has been made in terms of controlling corruption and improving the business environment. This, together with Georgia’s strong record of prudent monetary policy based on an inflation targeting regime, is supportive for fundamentals.

Technical factors are also positive as it is unlikely that the Georgian government will issue any more external bonds this year. It is also important to remember that risks, which we are monitoring, are still prevalent. Georgia is a small, open economy that is highly dollarized and vulnerable to external shocks. Geopolitics is also a risk given the unresolved conflict with Russia over two occupied regions.

In the case of Georgia, significant progress has been made in terms of controlling corruption and improving the business environment.


Going forward, it is important that we see the trend of positive reforms continue in Georgia, particularly in areas such as pensions and education.


Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of December 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. The risks of international investing are heightened for investments in emerging market and frontier market countries. Emerging and frontier market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed market countries.


Next Steps: