Georgian Economy Overview
March 2009
www.georgia.gov.ge

Country Overview
Area: 69,700 sq km
Population: 4,630,841 (2008E)
Life expectancy: 76.51 years
Official language: Georgian
Literacy: 100%
Capital: Tbilisi
Currency (code): Lari (GEL)
GDP 2008E: US$12.80 billion
GDP real growth rate 2008E: 2%
GDP per capita 2008E (PPP): US$4,851
Inflation rate (e-o-p) 2008: 5.5%
External debt to GDP YE2008: 21.4%
Source: Department of Statistics of Georgia
www.georgia.gov.ge 1
Georgian Economy Overview March 2009

Executive Summary
• Incredible economic performance in the past 5 years
 Major events & timeline
 Economic growth
 Investment inflows
 Fiscal & monetary performance
 Summary of reforms
• 2nd half of 2008
 The Russian aggression
• No major long-term interruptions in any kinds of supplies – food, electricity, gas, petrol
• No breakdown of the banking sector
• Triggered economic slowdown
• Geopolitical risk insurance
• US-Georgia charter on security
• New wave of democratic reforms
 Global financial crisis
• Affected Georgia through decrease of exports
• Other related factors
• Donor funding of US$4.5 billion (35% of 2009 forecast GDP)
• The economy remains resilient
 GEL 2.2 billion (10% of 2009 forecast GDP) fiscal stimulus in 2009
 Low public debt
 Resilient and well-capitalised banking sector
 Recent tax reforms
 Special taxation regimes
 Secure energy supply
 Real GDP growth forecast for 2009
 Committed to continuing reforms
www.georgia.gov.ge 2
Georgian Economy Overview March 2009

Major Events
2004 2005 2006 2007 2008
• President Mikheil • New tax code • Increasing FDI • Very strong • New presidential
• Deep liberalisation inflows economic and parliament
Saakashvili is
elected performance elections – fresh five
• Strong GDP growth
• Infrastructure
year mandate to
• Rule of Law • Strong portfolio
• Economy resilient to
rehabilitation
continue liberal
inflows
• Fighting Russian trade
• Improvements in
economic reforms
• Opposition
corruption embargo
Energy Sector
• Aggressive reforms
protests in Sep-
• Public sector
of the financial
Nov
reform
services sector
• Western
• Sovereign Eurobond
oriented
debut
foreign policy
• Georgia-Russia
armed conflict in
August
• Global financial
crisis
World Bank Ease of Doing Business global ranking (http://www.doingbusiness.org)
NA #112 #34 #21 #15
www.georgia.gov.ge 3
Georgian Economy Overview March 2009

Economic Growth
GDP GDP per capita (PPP)
Nominal GDP (US$bn) Real GDP growth, y-o-y (%)
6,000
14 14%
4,931
12.3% 4,851
4,694
11.1% 5,000
12 12%
12.9
12.8
9.6% 4,038
9.4%
10 10% 3,644
4,000
3,242
10.2
US$
2,966
US bn
8 8%
5.9% 3,000
7.8
6 6%
6.4 2,000
4 4%
2.5%
5.1
2.0%
4.0 1,000
2 2%
0 0% 0
2003 2004 2005 2006 2007 2008E 2009F
2003 2004 2005 2006 2007 2008F 2009F
Source: International Monetary Fund
Source: Department of Statistics of Georgia, Ministry of Finance of Georgia
Components of nominal GDP, 9m 2008 Nominal GDP per capita
Other, 17.7% 3,500
Public
Financial
Administration,
Intermediation, 2,939
2,913
3,000
17.0%
2.6%
2,315
2,500
Education & Trade, 16.0%
US$
2,000
Healthcare, 8.3% 1,764
1,484
1,500
Construction, 1,188
Agriculture,
5.8% 919
11.0% 1,000
Transportation &
500
Manufacturing,
Communications,
9.5%
12.1% 0
Nominal 2008 estimated GDP - US$12,800.3 mln 2003 2004 2005 2006 2007 2008E 2009F
Source: Department of Statistics of Georgia Source: Department of Statistics of Georgia , National Bank of Georgia
www.georgia.gov.ge 4
Georgian Economy Overview March 2009

Investment Inflows
Net FDI
Net FDI breakdown by origin
2004-9m 2008 2,500
Country US$ mln %
2,014.8
UK 721.8 11.6%
2,000
Netherlands 692.3 11.1%
Turkey 609.1 9.8%
1,500
UAE 555.4 8.9%
1,190.4
US$
USA 525.8 8.5% 1,105.4
Kazakhstan 316.6 5.1%
1,000
British Virgin Islands 294.7 4.7%
Cyprus 283.3 4.6% 499.1 449.8
500
Azerbaijan 276.2 4.4%
Russia 249.8 4.0%
4,525.0 72.8%
Subtotal
0
1,689.9 27.2%
Other
2004 2005 2006 2007 9m 2008
6,214.9 100.0%
Total
Source: Department of Statistics of Georgia
Source: Department of Statistics of Georgia
FDI Breakdown by sectors (‘07A – 9m ‘08A)
Net FDI as % of GDP, ‘07
Sectors % of total
19.8%
Georgia
Transport & Communications 23.4%
Ukraine 6.3% Manufacturing 17.6%
Energy 16.9%
Kazakhstan 5.8%
Services 13.2%
Poland 4.4% Construction 12.0%
Banking 6.7%
Russia 4.1%
Agriculture 0.9%
Hungary Other 9.2%
2.8%
Total 100.0%
Source: National Bank of Georgia, International Monetary Fund
Source: Department of Statistics of Georgia
5
March 2009
www.georgia.gov.ge Georgian Economy Overview

Fiscal and Monetary Performance
Tax revenue performance Exchange rate evolution
GEL/US$ (period average) GEL/US$ (e-o-p)
(GEL mln) Budget Revenue* (LHS) Budget Revenue* as % of GDP (RHS)
1.4
1.49
7,000 35%
30.4%
1.5
29.3%
1.59
27.2%**
26.8%
6,000 30%
1.6
24.2%
1.71
23.1%
5,000 25%
1.7 1.79 1.66
1.67
1.83
4,000 20% 1.8
1.78
5,805
5,791
1.81
3,000 15% 1.9
4,973
1.91
3,695
2.08
2.0
2,000 10%
2,810
2,267
2.1
1,000 5%
2.15
2.2
0 0%
2003 2004 2005 2006 2007 2008
2004 2005 2006 2007 2008E 2009F
Source: National Bank of Georgia
Source: Ministry of Finance of Georgia
Conventional deficit (cash basis)*** Consumer price index (y-o-y)
Budget Cash Based Deficit as % of GDP CPI (e-o-p) CPI (period average)
13%
0%
12%
2005 2006 2007 2008E 2009F
-1%
11.0%
11%
10.1%
-2.6%
-2%
10%
-3.4% 9.2%
-3% 9% 8.2% 9.2%
8.8%
-4.4% 8% 7.5%
-4% -4.8% 7.0%
7%
-5%
6% 6.2%
5.7%
-6.6%
-6% 4.8% 5.5%
5%
-7% 4%
*Consolidated Budget 2003 2004 2005 2006 2007 2008
** Decrease in budget revenue as percent of GDP is caused by tax cuts effective from 1 January 2009
*** GFS 86 Classification Source: National Bank of Georgia
Source: Ministry of Finance of Georgia
www.georgia.gov.ge Georgian Economy Overview 6
March 2009

Summary of Reforms
• Eradicating corruption
• Civil service reforms
• Labour code reforms
• Establishing rule of law
• Energy solutions
• Deep deregulation – limiting state intervention
• Dramatically simplified licensing
• Reformed and simplified the Tax Code and the Customs Code
• Improved tax administration and enforcement
• Reduced taxes
www.georgia.gov.ge Georgian Economy Overview 7
March 2009

Reforms – Creation of Favourable Market Environment
Ease of Doing Business, 2008 Economic Freedom Index, 2008
USA
USA 5
3
UK 6 UK 10
Norway 10 Estonia 12
15 (up from 112 in 2005) 32 (up from 99 in 2005)
GEORGIA GEORGIA
Estonia 22 Latvia 38
Azerbaijan 33 Hungary 43
Armenia 44 France 48
Bulgaria 46 Bulgaria 59
Romania 45
Italy 64
Turkey 59
Romania 68
Kazakhstan 70
Turkey 74
Belarus 85
Kazakhstan 76
Montenegro 90
Azerbaijan 107
Serbia 94
Ukraine 133
Russia 120
Russia 134
Ukraine 145
Source: World Bank, 2008 (Rank out of 181 countries) Source: The Heritage Foundation
Corruption Survey, 2008 Bertelsmann Transformation Index, 2008
% of firms expected to make Informal payments (to Estonia 2
“get things done’) Latvia 10
Lithuania 17
35% 32.6%
Georgia 23
30% Ukraine 55
Armenia 56
25%
Kazakhstan 76
20% Kyrgyzstan 77
Moldova 87
15%
Tajikistan 88
10% Russia 98
4.1% Azerbaijan 99
5%
Belarus 110
Uzbekistan 117
0%
Turkmenistan 121
Georgia Eastern Europe & Central Asia
Source: International Financial Corporation (IFC) Source: Bertelsmann Stiftung , 2008 (Rank out of 125 countries)
www.georgia.gov.ge 8
Georgian Economy Overview March 2009

August ‘08 Conflict
October-
7-15 15-22 22-29
February
September
August August August
2009
• Banking Sector – • Banking Sector – • Banking Sector – • Banking Sector –
minimal lending Business (almost) Business as usual,
interruptions, restrictions as usual but very low net
lending & online abolished, online • Energy Sector – new lending
banking suspended banking resumed • Energy Sector –
Business as usual
• Energy Sector – • Energy Sector – Business as usual
• Transport &
Georgia continues no interruptions • Transport &
Logistics –
exporting in electricity or Business (almost) Logistics –
electricity gas supply as usual Business as usual
• Transport & • Transport & • US$4.5 bn donors
Logistics – Partial Logistics – flights, pledge
blockade of Poti port & railway • GEL2.2 bn fiscal
and Georgian operations economic
Railway resumed (almost) stimulus
in normal way
Russian Sarkozy Partial pull EU observers Geneva The Charter on Strategic
forces plan signed; back of deploy into negotiations Partnership between
invade Fighting Russian conflict launched between Georgia and the United
Georgia stops troops affected areas the parties States was signed
www.georgia.gov.ge 9
Georgian Economy Overview March 2009

Geopolitical Risk Insurance
• Political Risk Insurance
• Government of Georgia plans to launch political risk re-insurance (PRI)
services to the strategic and portfolio investors seeking investment
opportunities in Georgia
• PRI will minimize the exposure to political risks that some of the investors
come across while investing in Georgia
• Assets and investments of any size and in any industry can be insured
• EU Mission in Georgia
• EU observers deployed into conflict affected areas of Georgia
• US-Georgia Charter on Strategic Partnership signed on 9 January 2009
• The Charter is based on the principles of strategic cooperation between the
two states and support for the sovereignty, independence, territorial integrity,
inviolability of borders and the strengthening of democracy and stability
www.georgia.gov.ge 10
Georgian Economy Overview March 2009

Bilateral Treaties on Investment Promotion
• Georgia has bilateral treaties on investment promotion and protection with the
following 25 countries
1. Austria 14. Israel
2. Azerbaijan 15. Moldova
3. Armenia 16. Netherlands
4. Belgium 17. Romania
5. China 18. Turkey
6. Egypt 19. Turkmenistan
7. Finland 20. Sweden
8. France 21. Ukraine
9. Greece 22. Uzbekistan
10. Kazakhstan 23. USA
11. Kyrgyzstan 24. Luxemburg
12. Italy 25. Czech Republic - pending
13. Iran
www.georgia.gov.ge 11
Georgian Economy Overview March 2009

US-Georgia Charter of Strategic Partnership
• On 9 January 2009, the Charter on Strategic Partnership between Georgia and the
United States was signed
• According to the charter:
 United States will undertake a Program of Enhanced Security Cooperation that will increase Georgian
capabilities and strengthen Georgia’s candidacy for NATO membership
 Recognising the threats to global peace and stability, Georgia and the United States will expand the
scope of their defense
 In order to improve cooperation in the fields of trade and economy, Georgia and the United States will
update Bilateral Investments Treaty, expand Georgian access to the General System of Preferences and
explore the possibility of a Free Trade Agreement
 Georgia and the United States will promote economic reforms and liberalization, enhance job creation,
economic growth and improvement of business climate
 The sides will explore opportunities for increasing Georgia’s energy production and enhance the
physical security of energy transit through Georgia to European markets. Through cooperation with
Azerbaijan and Turkey, Georgia and the United States will develop a new Southern Corridor to help
Georgia and the rest of Europe secure imports of natural gas supplies from Azerbaijan and Central Asia
www.georgia.gov.ge 12
Georgian Economy Overview March 2009

New Wave of Democratic Reforms
• New wave of democracy implies the reforms in order to have a stronger
Parliament, more effective means of control and oversight between the
branches of government, more free and unbiased media and more
independent judiciary
 Stronger Parliament and enhanced oversight
 Property rights
 Greater media openness
 Enhanced independence of the judiciary
 Lifetime appointments of Judges
 Trials by jury
www.georgia.gov.ge 13
Georgian Economy Overview March 2009

-6%
-4%
-2%
0%
2%
4%
8%
6%
10%
12%
Peru 9.8%
China 9.0%
Egypt 7.2%
Indonesia 6.1%
Russia 6.0%
India 5.3%
Malaysia 5.1%
* Government of Georgia's forecast
Poland 4.8%
Slovenia 4.0%
www.georgia.gov.ge
Israel 4.0%
Lithuania 3.7%
Hong Kong 3.1%
Thailand 3.0%
South Korea 2.6%
Austria 2.2%
Source: Economist (Economic and Financial Indicators - Output, prices and jobs)
Georgia* 2.0%
Taiwan 1.8%
Switzerland 1.8%
Finland 1.6%
Norway 1.5%
Georgian Economy Overview
Turkey 1.5%
Singapore 1.2%
Euro Area 0.8%
Real GDP growth – 2008E
UK 0.7%
Sweden 0.6%
Global Financial Crisis
Luxemburg 0.6%
Canada 0.5%
Hungary 0.4%
Japan -0.2%
outlook through decreasing exports and other related indicators
Iceland -0.5%
March 2009
Denmark -0.6%
New Zealand -0.9%
Ireland -2.8%
Estonia -2.8%
Latvia -4.6%
• In October 2008, Global Financial Crisis impact on Georgia’s macroeconomic
14

Resilient Economy
Central Bank Reserves
IMF Facility
FX researves in 2007 FX Reserves in 2008
2,500
2,000
500
500
500
500
US$ mln
1,500
1,908.2
1,000
1,508.5
1,480.8
1,469.8
1,454.6
1,419.8
1,401.0
1,369.8
1,359.5
1,354.6
1,346.3
1,347.0
1,339.6
1,325.3
1,271.3
1,245.6
1,220.1
1,208.5
1,122.6
1,112.9
1,051.7
1,008.1
985.8
934.6
500
0
January February March April May June July August September October November December
Source: National Bank of Georgia
Fiscal Revenue Performance
2007 2008
600
500
400
GEL mln
300
502.6
499.5
459.2
447.3
444.3
442.5
415.3
408.1
407.6
390.5
379.4
377.9
367.1
366.8
362.5
358.4
352.2
346.3
319.6
200
316.1
308.4
305.5
303.5
263.1
100
0
January February March April May June July August September October November December
Source: Ministry of Finance of Georgia
• IMF stand-by arrangement facility program was signed in September 2008 for US$ 750 mln, of which US$250 mln was received at
the end of the September 2008
• Increases in FX reserves was stem from the IMF stand-by arrangement facility program and budgetary support of donors
www.georgia.gov.ge 15
Georgian Economy Overview March 2009

Resilient Economy, cont’d
M2 and M3 vs. NBG’s FX Reserves M2 and M3 Performance
M2 M3 Real GDP growth rate
Reserves/M2 Reserves/M3
5 15%
1.6
12.3%
1.4
4 12%
1.2 4.2
9.6% 4.0
9.4%
1.0
3 9%
GEL bn
0.8
5.9%
0.6 2.7
2 6%
0.4 2.1
1.9 1.8
0.2 1.5
1 3%
1.4
0.0 2.0%
1.1
0.8
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Mar-04
May-04
Mar-05
May-05
Mar-06
May-06
Mar-07
May-07
Mar-08
May-08
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
0 0%
2004 2005 2006 2007 2008
Source: National Bank of Georgia Source: National Bank of Georgia
NBG interventions
Monthly TICEX trading volume NBG's monthly net interventions
300
200
100
US$ mln
0
-100
-200
Jan-07
Mar-07
Jun-07
Oct-07
Jan-08
Mar-08
Jun-08
Oct-08
May-07
May-08
Apr-07
Jul-07
Aug-07
Apr-08
Jul-08
Aug-08
Feb-07
Sep-07
Nov-07
Feb-08
Sep-08
Nov-08
Dec-07
Dec-08
www.georgia.gov.ge 16
Georgian Economy Overview March 2009

Real Estate Market
New property registrations Mortgages
2007 2008 2007 2008
30 8
7.2
7.2
7.0
6.9 7.2
7 6.6
24.4
24.6
25
# of issued mortgages '000
6.1
# of registrations '000
6 5.8
19.6
5.3
5.5 4.8
20 5.0
5.2
16.7 16.3 5
4.5
4.1 5.4
3.8 5.2
4.4
13.2 12.4 4.8
15 4
12.0
10.8 4.2
9.3 3.3
3
7.5
10 2.7
6.4 2.9
10.3 9.8 9.8 10.3 10.2 9.9 2
8.0
5 6.9 7.2 6.8 7.7 1
5.2
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: National Agency of Public Registry
Source: National Agency of Public Registry
Secondary market purchases Real estate registrations
2007 2008 New real estate registrations Secondary market purchases Mortgages
30 26.2
300
24.8 26.2
25 22.5
23.5
# of transactions '000
244.6
20.8
21.5
24.9 250 224.3
19.5
18.8 18.3 21.7
19.2
20
200 173.2
17.8 17.5 20.0
13.8 19.6 17.5
18.3 15.8
15
'000
150
14.3 114.3
14.5 102.0
103.3
10
11.8 100 68.1
56.8
5 35.5
50
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 2007 2008
Source: Ministry of Finance of Georgia
Source: Ministry of Finance of Georgia
www.georgia.gov.ge 17
Georgian Economy Overview March 2009

Current Account Deficit
Current account deficit*
CAD Total private capital inflows (TPCI) Donor Inflows (DI) CAD as % of GDP CAD + TPCI+DI as % of GDP
4,000 30%
3,000 942.0
20%
276.2
2,000 2,515.3
261.7 2,275.6 1,535 10%
176.7
1,000 7.6%
5.6% 4.3% 750.0
5.4%
US$ mln
98.3 3.1%
160.3 1,499.8
351.0 1.7% 1.5%
479.6 733.2
0 0%
-353.6
-383.3 -709.5 -1,173.7
-1,000 -2,005.9 -2,091.8 -10%
-2,910.8
-6.9%
-2,000 -9.6% -11.1%
-20%
-15.1% -16.2%
-3,000
-19.7%
-22.9%
-4,000 -30%
2003 2004 2005 2006 2007 2008E 2009F
*Updated as of 18 March 2009
Note: Donor inflows include both public and private sectors
Source: National Bank of Georgia , Minister of Finance of Georgia
Exports and imports**
Imports of goods & services Exports of goods & services Remittances
CAGR(‘04-’09F): 20% CAGR(‘04-’09F): 13%
8,000
7,501.6
6,000
5,916.9
US$ mln
5,251.1
917.9
4,000 4,412.9 755.4
3,318.1 730.0
420.5
2,492.8 315.4
1,865.3
2,000 3,674.7
212.7 3,182.4
165.8 2,572.3
2,551.6
2,187.5
1,646.9
1,288.5
0
2003 2004 2005 2006 2007 2008E 2009F
**Export & import of goods and services
Source: National Bank of Georgia
www.georgia.gov.ge Georgian Economy Overview 18
March 2009

The Donors’ Pledges of US$4.5 billion
Aid by donors Aid by sectors
Donor US$ million Sector US$ million
World Bank 530
IDPs support; e.g. IDPs housing 350
EBRD 927
Transport infrastructure 682
Asian Development Bank 300
IFC 350 Energy infrastructure 381
European Investment Bank 330
Urban and municipal infrastructure 210
USA 1,000
Finance and banking 1,105
EC 638
Non- sectoral support 586
EU members 174
Japan 200
Unallocated 1,221
Other states 88
Total 4,535 4,535
Total
Source: World Bank, European Commission Source: World Bank, European Commission
• As of 31 December 2008, Georgia has already entered into agreements for or received 30% (US$1,366 million,
10.7% of 2009 forecast GDP) of the total donors pledge to private and public sectors
• Additional projects have already been indentified and agreements have been reached on the amount of
US$2,189 million (48% of total pledge, 17.2% of 2009 forecast GDP) to be formally committed in 2009-2011
• Government of Georgia has been working and negotiating the terms and conditions on the remaining amount of
US$980 million, 22% of total pledged amount
www.georgia.gov.ge Georgian Economy Overview 19
March 2009

The Donors’ Pledges of US$4.5 billion, cont’d
2008 US$ mln 2009 US$ mln (formal
Implementation Of The Pledge Made At The International Donors'
(formally committed) commitments pipeline)
Conference For Georgia (Brussels, 22 October 2008)*
Loan Grant Loan Grant
Public Sector
1. Budget Support 110.0 291.5 80.0 60.9
2. Internally Displaced Persons 30.5 141.9
3. Core Recovery of the Georgian Economy 159.1 128.2 1,179.6 10.2
Infrastructure – Transport 20.0 60.0 875.1
Infrastructure – Energy 14.0 279.4
Infrastructure – Municipal 139.1 34.9 25.1 10.2
Agriculture 13.0
Environment 6.4
4. Other 5.8 62.6 355.9
Total Public Sector 275 513 1,260 569
Private Sector
EBRD (real sector, banking) 220 200
IFC (real sector, banking) 172 160
FMO (banking) 10 To be Discussed
OPIC (real sector, banking) 176 To be Discussed
Total Private Sector 578 360
Total Public and Private 853 513 1,620 569
Of which: Grants 1,082 USD million
Loans 2,472 USD million
*The break-down does not include assistance managed exclusively by donor agencies
Examples Of Infrastructure Projects:
• 500 kv. Power Transmission Line (EBRD, EIB, KfW) • South Georgia Road (MCG)
• East-West Highway Improvement Project (WB, Japan) • Secondary and Local Roads (WB)
• Adjara Bypass Road (ADB) • Rehabilitation of Communal Infrastructure Facilities in Batumi (KfW)
• Vaziani-Gombori-Telavi Road (WB) • Regional and Municipal Infrastructure Development Projects (ADB, EBRD)
Georgian Economy Overview 20

Diversified Trade Structure
 WTO member since
Import structure* by country, 2008
Export structure* by country, 2008
2000
Kazakhstan, Others,
China, 0.7% Armenia,
 Simplified customs Kazakhstan,
1.3% 10.4%
1.2%
Other, 6.0%
Russia, 1.9%
regime since August 1.1%
EU Countries,
2006, new customs Turkmenistan,
28.5%
United Arab
2.8%
code became effective Emirates,
EU Countries,
in 2007 and was 0.8%
25.8% China, 5.0%
upgraded in 2009
Canada, 8.7% USA, 4.1%
 No quantitative
restrictions on trade Ukraine, 7.6% United Arab
Turkey, 19.5%
Turkey,
Emirates,
Armenia, 14.9%
4.8%
 Zero tariff on the 7.2% Russia, 6.7% Azerbaijan,
Ukraine,
Azerbaijan,
majority of goods USA, 7.2% 10.2%
10.7%
14.2%
 One of the two Source: Department of Statistics of Georgia
Source: Department of Statistics of Georgia
beneficiaries of the EU
Import structure* by product, 2008
Export structure* by product, 2008
GSP+ Scheme in the CIS
since 2006, granting
Equipment & Oil & Gas, Paper, 1.6%
local companies the Plastic, 2.8%
Pharmaceuticals, 1.3% Ferrous Metal
Rail Cars, 3.9% 3.3%
right to export 7,200 Sugar, 1.1%
Cement, 5.6% Products,
categories of goods Vessels & 2.7%
Gems &
duty-free Aircraft, 0.3% Ferrous
Precious
Metals, 4.1%
Stones, 6.5%
Sugar, 0.5%
 Share of EU in exports
Beverages,
up to 26% from 17% in Pharmaceuticals,
Spirits & Others, 39.2%
2003 3.3%
Others, 16.3%
Vinegar, 7.7%
 Georgia Turkey FTA Vehicles, 7.6% Cereals, 3.3%
was signed in 2008 Mechanical
Fertilizers, Vehicles,
Equipment &
6.7% 12.2%
Ferrous Electrical
Oil & Gas,
Metals, 31.2%
Coppers & Machinery,
18.3%
Gold, 8.8% 20.1%
Source: Department of Statistics of Georgia
Source: Department of Statistics of Georgia
* Export & import of goods only
www.georgia.gov.ge Georgian Economy Overview 21
March 2009

The Economy Remains Resilient
• However global financial crisis slowed down Georgia’s economy, it showed another strong
resilience due to the following reasons
• IMF US$750 stand-by arrangement facility completed in early September 2008
• US$4.5 bn donor funding pledged in late October 2008 at the International Donors’
conference
• Government of Georgia’s GEL 2.2 bn fiscal stimulus package for 2009
• Unlike its CIS and CEE peers, Georgia’s banking sector remained robust due to its high capital
adequacy ratio (CAR) – average CAR for the past five years has been 19%
• Georgia enjoys
• Favorable public debt performance (total public debt as percent of GDP decreased form
56% in 2003 to 29% in 2008)
• Flat, low and easy taxation system
• Special taxation regimes introduced (international financial company, free industrial
zone, free warehouse company)
• Increasing integration into the global economy
• Double-Taxation Treaties (DTT) with 24 countries
• Free Trade Agreements (FTAs) in effective discussion with many key countries
• GSP+ with the EU extended
• Energy supply stability
www.georgia.gov.ge Georgian Economy Overview 22
March 2009

Economy’s Stimulus Package - GEL 2.2 bn, Social Package - GEL1.6 bn
State Budget, GEL mln (including donors financing through budget)
• Main roads (road dept.) 520
• Other roads (MCG, MDF) 180
• Water utilities 120
• Regional projects 150
• IDP housing 140
• Educational infrastructure 80
• Irrigation, river border construction 30
• Other 230
Subtotal 1,450
Tax decrease 250
Donor financing, outside of budget 500
Grand total 2,200
• New approach – increased social benefits for the most vulnerable
Source: Mministry of Finance of Georgia
www.georgia.gov.ge 23
Georgian Economy Overview March 2009

Favourable Public Debt Performance
Breakdown of public debt Comments
External public debt Internal public debt  Georgia’s economy is quite unleveraged compared to other
Total public debt as % of GDP
emerging market economies
4.0 60%
 Georgia’s public debt is 29% of GDP in 2008 down from 56% in
50.5%
56.1%
3.5
50% 2003
0.78
3.0 0.97
40.0%
 Paris club rescheduling in 2001 and 2004
40%
0.85
2.5
 Georgia repaid all debt to China in 2006 and pre-paid all debt
US$bn
0.83 0.89
0.85 32.0% 27.4%
2.0 30% to Austria
0.76 29.0%
25.5%
1.5
 The external debt is all multilateral or bilateral and significant
20%
2.69
2.48
share is highly concessional
1.0 1.86 1.79
1.73 1.70
1.56 10%
 This explains why the government debt service burden is low
0.5
 Eurobonds debut issuance of US$500 mln in April 2008
0.0 0%
2003 2004 2005 2006 2007 2008E 2009F
Source: Ministry of Finance of Georgia
General government debt as % of GDP, 2007
External public debt service
External debt service External debt service, as % of budget revenue
Romania 13.0%
250 10%
Ukraine 16.6%
8.8%
Bulgaria 20.0%
200 8%
7.3%
7.1%
Georgia ('07) 25.5%
Georgia ('08)* 29.0%
150 6%
US$ mln
5.4%
Slovakia 29.4%
3.4%
100 4%
Czech Republic 30.5%
190.9
152.2
Poland 47.3%
2.1%
110.6
103.8 102.1
50 2%
82.6 Turkey 52.3%
Hungary 76.1%
0 0%
2004 2005 2006 2007 2008E 2009F
0% 20% 40% 60% 80%
Source: Ministry of Finance of Georgia * Increase in General government debt as percentage of GDP in 2008 is caused by Eurobond issuance
Source: Ministry of Finance of Georgia, Institute of International Finance
www.georgia.gov.ge Georgian Economy Overview 24
March 2009

Robust Banking Sector
2009
2008
1999 2000 2001 2002 2003 2004 2005 2006 2007
Dhabi Group
 Georgia’s banking sector represents only a moderate contingent liability of the sovereign
 Entirely privately owned since 1996
 No restrictions on foreign ownership of banks
 Well capitalised with average BIS capital adequacy ratio of 19%
www.georgia.gov.ge Georgian Economy Overview 25
March 2009

Non-Performing Loans
Loan loss reserve to total loans
NPL to total loans
FSA requirements Actual - Based on IMF's methodology 10%
9.0%
12.8%
14% 8.8%
12.5%
9%
11.1% 8.0%
12%
9.9% 7.5%
8%
10%
7%
8%
6%
6% 5.0%
4.1%
3.5% 5%
3.1%
3.1% 4.3%
4% 2.7%
2.4%
4%
1.0%
0.9%
2%
3%
0%
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
Source: National Bank of Georgia, FSA Source: National Bank of Georgia, FSA
Equity to liabilities, 2008A Capital Adequacy Ratio (CAR)
23%
25% 25%
20% 20%
15% 15%
13% 13%
15% 15%
10% 10% 10%
9% 9%
10% 10%
6%
5% 5%
0% 0%
Ukraine
Croatia
Estonia
Lithuania
Georgia
Russia
Bulgaria
Greece
Czech
Latvia
Germany
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Mar-06
Mar-03
Mar-04
Mar-05
Mar-07
Mar-08
Sep-06
Sep-03
Dec-03
Sep-04
Dec-04
Sep-05
Dec-05
Dec-06
Sep-07
Dec-07
Sep-08
Dec-08
Source: National Bank of Georgia, FSA
Source: Latest data from the web-sites of Central Banks
www.georgia.gov.ge Georgian Economy Overview 26
March 2009

Banking Sector Foreign Debt
 Foreign financial support coming mainly from International Financial Institutions enables Georgian banking sector
to pay off foreign liabilities without need to decrease loan portfolio. Foreign borrowings are long term, indicating
predictability of their repayments
Foreign debt refinancing
Foreign debt outflow
Banking Sector Cumulative Outflow
Banking sector
296.2
350
Banking Sector Cumulative Inflow
debt of US$296.2 748.6
800
252.2
721.4
300 mln, due in Q1
226.4
661.4
‘09, has already 700
250 been repaid 579.8 712.0
600 648.1
200
US$ mln
500
US$ mln
548.5
150
99.7
400
63.8
60.6
58.3
100
54.0
300
42.9
36.6
33.8
25.7
21.7
21.4
296.2
15.6
50 200
9.1
100
0
Q 2 2009
Q 3 2010
Q 1 2009
Q 3 2009
Q 4 2009
Q 1 2010
Q 2 2010
Q 4 2010
Q 1 2011
Q 2 2011
Q 3 2011
Q 4 2011
Q 1 2012
Q 2 2012
Q 3 2012
Q 4 2012
0
Q 1 2009 Q 2 2009 Q 3 2009 Q 4 2009
Source: National Bank of Georgia, FSA
Source: National Bank of Georgia, FSA
www.georgia.gov.ge Georgian Economy Overview 27
March 2009

Banking Sector Resilience
Increasing liquidity – donor financing Comments
 The banking system adequately recognises risks, based
IFIs financing (US$ mln) ‘08E* ‘09F
on not only existing overdues and restructurings, but
also forward looking approach, using in many sense more
EBRD 220 200
conservative supervisory standards as compared to
requirements of IFRS
IFC 160 130
 Regardless the crisis, shock absorbing capacity of the
OPIC 80 NA
banking system remains high. Especially taking into
account around US$250 million further capital injection,
FMO 10 NA
which increases regulatory capital by 17%, and exceeds
provisioning incurred in August-December
Total 470 330
* Donors’ financing in 2008 has already been approved
Source: Ministry of Finance of Georgia
Non-bank Deposits (local currency), 2008
Total Non-bank Deposits (local currency), 2008
3,800 Individuals Legal entities
2,000
3,573.4
3,541.4
3,600
1,900
GEL mln
3,400 3,285.4 1,800
GEL mln
3,186.0
1,700
3,108.6
3,200 3,066.0
1,600
3,000
1,500
2,800 1,400
July
August
October
September
November
December
July
August
October
September
November
December
Source: National Bank of Georgia, FSA Source: National Bank of Georgia, FSA
www.georgia.gov.ge Georgian Economy Overview 28
March 2009

Recent Reforms - Taxation
‘04A ‘05A ‘06A ‘07A ‘08F ‘09F ‘10F ‘11F ‘12F ‘13F
Number of
21 7 7 7 6 6 6 6 6 6
Taxes
VAT 20% 20% 18% 18% 18% 18% 18% 18% 18% 18%
Social Tax + Social Tax +
12- 12% 12% 12% Income Tax Income Tax
Income Tax 20% 18% 15% 15%
20% flat flat flat
32% 25% 20%
Social Tax 33% 20% 20% 20% - - - - - -
Corporate
20% 20% 20% 20% 15% 15% 15% 15% 15% 15%
Profit Tax
Dividend
10% 10% 10% 10% 10% 5% 5% 3% 0% 0%
income tax
 Out of 21 taxes under the former tax code, only 6 exist today
 Tax rates reduction timetable has been further accelerated in key tax rates in 2008
 This will provide a significant stimulus for the economy in 2009 and beyond
 Georgia, over the last five years, has evolved into one of the most attractive low-tax jurisdictions in Europe
www.georgia.gov.ge 29
Georgian Economy Overview March 2009

Present Taxation System
• The taxation framework in Georgia is as follows
 Flat personal income tax of 20% decreasing to 15% by 2012
 Corporate income tax of 15%
 VAT of 18%
 Property tax up to 1% on the self-assessed value of property
 Interest income and dividend tax rates of 5% decreasing to 0% by 2012
 0% dividend income tax on dividends from publicly-traded equities
 0% tax on interest income from bank deposits and publicly-traded debt
securities
 No capital gains tax
 No social insurance or similar taxes
 No inheritance tax
 No wealth tax
 No stamp duty or other transaction-based taxes or levies
www.georgia.gov.ge 30
Georgian Economy Overview March 2009

2008 Tax Misery Index
 According to 2008 Tax Misery Index, release by Forbes Business & Financial News, Georgia is the fourth
least tax burden country after Qatar, UAE and Hong Kong
Since 1 January
2009, income tax
declined to 20%
from 25%
Source: Forbes Business & Financial News
www.georgia.gov.ge 31
Georgian Economy Overview March 2009

Special Taxation Regimes Adopted
• Special taxation systems have been adopted for the different regimes aimed at establishing new international
financial institutions in the country, encourage economic growth, support sustainable development and the
trade-transit function of Georgia
An international financial
Type of tax Free industrial zone Free warehouse company
company
(for International (from re-exporting of
Corporate Income Tax (from financial services) 0%
Companies) 0% foreign goods) 0%
Value Added Tax 0% 0% 0%
Customs Tax 0%, 5% or 12% 0% 0%
Property Tax up to 1% 0% up to 1%
Personal Income Tax 20% 20% 20%
www.georgia.gov.ge Georgian Economy Overview 32
March 2009

Increasing Integration Into the Global Economy
 The taxation system in
Georgia provides low,
flat tax rates and double
taxation avoidance
treaties with 24
countries – a unique
combination worldwide
 FTA agreements with
the CIS countries
 FTA with Turkey
 GSP+ with the EU
 GSP with the US
 Possible developments
in the nearest future: Source: Ministry of Finance of Georgia
 FTA with EU
 FTA with USA
www.georgia.gov.ge 33
Georgian Economy Overview March 2009

Secured Energy Supply
• 5 year gas supply contract with Azerbaijan
• 20 year gas supply contract with Shah Deniz
• Transit role for oil & gas – pipelines and railway
• The only country in the region (which doesn’t have its own gas resource) that was
not effected by gas crises in January 2009
• NABUCCO project
• Net electricity exporter
• Construction of 500 kv. power transmission line to Turkey
• Construction of 100 kv. power transmission line to Turkey
• Construction of 78MW Faravani HPP
• Construction of 38 MW Mtkvari HPP
• Huge untapped hydro resources
 Only 18% of the country’s hydro potential has been utilised
 Huge, rapidly growing consumption rate and high tariffs in the Turkish
electricity market
• MOU with RAO UES on the Enguri HPP - RAO UES putting up its Georgian assets as
collateral
www.georgia.gov.ge 34
Georgian Economy Overview March 2009

Oil & Gas Exploration & Transportation
www.georgia.gov.ge 35
Georgian Economy Overview March 2009

Power Supply of Georgia
www.georgia.gov.ge 36
Georgian Economy Overview March 2009

-8%
-6%
-4%
-2%
0%
2%
4%
8%
6%
-14%
-12%
-10%
China 6.0%
India 5.0%
** IMF's forecast
Egypt 4.9%
Peru 3.1%
Georgia* 2.5%
Indonesia 1.9%
* Government of Georgia's forecast
Georgia** 1.0%
Russia 1.0%
Switzerland 1.0%
www.georgia.gov.ge
Poland 0.7%
Slovenia 0.5%
Israel 0.4%
Austria 0.3%
Malaysia -0.3%
Canada -0.7%
Norway -1.0%
Source: Economist (Economic and Financial Indicators - Output, prices and jobs)
Sweden -1.0%
Finland -1.3%
Turkey -1.5%
Denmark -1.7%
Thailand -1.8%
Georgian Economy Overview
Euro Area -2.1%
UK -2.6%
Luxemburg -2.8%
Hungary -3.0%
Japan -3.2%
New Zealand -3.2%
Hong Kong -4.7%
Lithuania -4.8%
Ireland -4.8%
Estonia -5.0%
March 2009
South Korea -5.9%
Taiwan -6.5%
Singapore -7.2%
Real GDP Growth Forecast for 2009
Iceland -9.7%
Latvia-12.0%
37

Committed to Continuing Reforms
• In the medium-term, the Government intends to pursue the following
strategic initiatives in order to sustain economic growth
 Further lighten the tax burden over the next 4-5 years
 Fully resolve the IDPs resettlement issues
 Further develop Georgia’s infrastructure in order to increase efficiency in the
economy and attract investment
 Promote the creation of new jobs in the private sector
 Further liberalise trade and reduce barriers to entry
 Aggressive extension of the double taxation treaties footprint
 Further encourage institutional de-regulation of the economy
 Continue to privatise state property and promote transparency and efficiency
in the management of state property
 Enhanced independence of the judiciary
 Support greater media openness
www.georgia.gov.ge 38
Georgian Economy Overview March 2009

Contacts
Nika Gilauri Kakha Baindurashvili
Prime Minister of Georgia Minister of Finance of Georgia
+995 32 922 243 +995 32 446 444
ngilauri@geo.gov.ge k.baindurashvili@mof.ge
Goga Melikidze
Advisor to Prime Minister of Georgia
+995 32 934 632
g.melikidze@mof.ge
www.georgia.gov.ge 39
Georgian Economy Overview March 2009