Shortly afterwards it went through the turmoil of a civil war and conflicts in two separatist regions – Abkhazia and South Ossetia. The economy of the country dramatically fell in the early nineties which led to Georgia often being referred to as failed state at the beginning of the twenty-first century.
After the Rose Revolution in 2003, Georgia made substantial progress in economic reforms, service provision and the fight against corruption and organised crime. The centralised power and decision making processes were effective for implementing reforms with quick results in the short term, but much less effective in building sustainable institutions and alleviating poverty. Radical reforms to liberalise the economy and improve fiscal discipline resulted in economic growth. Growth has enabled investments in public services, primarily benefiting urban areas, while poverty continues to be deep and widespread in the countryside. Overall poverty in Georgia has decreased from by 3,8% to 24,7% between 2003 and 2009 while poverty in rural areas decreased only by 2,3% and is now around 30% despite over 4 years of strong economic growth according to a World Bank report. The gap between urban and rural areas has widened since the Rose Revolution in 2003 and rural areas have now about 64% of Georgia’s poor despite accounting for less than half of the population.
The armed conflict in August 2008 and the continued Russian military presence in the disputed areas of South Ossetia and Abkhazia heavily affected the development pace of Georgia. The conflict resulted in an additional 25,000 IDPs to the 250,000 IDPs already in the country. Loss of investor confidence and subsequent rapid decrease in foreign investments was another result. Despite the conflict 2008 and the global recession in 2009 Georgia is recovering from the war and the economic downturn. However, foreign direct investments are still below the pre-war level.
In response to the crisis the Government of Georgia adopted a strategic document that defines the main objectives for 2010-2013 as: “United Georgia without poverty” with peaceful conflict resolution, Euro-Atlantic Integration, employment and infrastructure rehabilitation as the top priorities. Deeper integration with EU is a strategic goal which includes multiple challenges including consolidation of democracy, institutional, economic and political reforms and making development socially and environmentally sustainable.
