Georgia's economy has recorded strong growth over the past several years, driven in large part by exceptional circumstances that followed the outbreak of the Russia-Ukraine war. Capital inflows, migration, re-export trade, and transit demand created conditions that few anticipated and that the country's underlying economic structure did not generate independently. As these factors normalize, fundamental questions about the sustainability of Georgia's growth model, its institutional readiness, and its strategic positioning are coming into sharper focus.

This interview features Giorgi Khishtovani, one of Georgia's leading economists and a Full Professor and Head of the Department of Finance at Ilia State University, whose research focuses on political economy, governance, and fiscal policy. Drawing on this expertise, he offers a critical assessment of the drivers and limits of Georgia's recent economic performance, the risks associated with the country's growing political isolation from Western partners, and the structural reforms required to place the economy on more durable foundations. The conversation also addresses Georgia's position within the Middle Corridor, the shadow economy, strategic regional dynamics in the South Caucasus, and the long-term economic scenarios facing the country over the next decade. Together, these issues form a comprehensive account of the economic and political crossroads Georgia currently faces.

Anatomy of Georgia's Recent Economic Growth Georgia has posted impressive GDP growth numbers in recent years, with double-digit figures following the outbreak of the Russia-Ukraine war and sustained strong performance since. In your assessment, what has actually been driving this growth, and how much of it reflects genuine structural economic development versus windfall effects from geopolitical disruption, migration inflows, re-exports, and transit rents?

The primary driver of recent economic growth in Georgia is the Russia-Ukraine war. This factor triggered an influx of capital, labour, and trade flows into or through Georgia, providing a significant boost to the economy. This included the arrival of nearly 100,000 highly skilled workers from Russia and Belarus, increased tourism from Russia, and an accelerated entry of foreign students (due to the closure of the Ukrainian market). Furthermore, Georgia became a key route for indirect trade with Russia. Another factor was the rapid growth of the ICT sector, largely driven by the aforementioned immigrants and the tax incentives international ICT companies have been enjoying in Georgia since 2020. However, this growth is somewhat "virtual" as the Georgian economy receives minimal benefits; these companies pay almost no taxes due to incentives, and many employees are not even physically in Georgia while these companies sell services abroad. In my view, the growth phase due to the war in Ukraine ended by late 2024. The growth in 2025 was mostly inertial and virtual due to the ICT sector's significant growth numbers. At the same time, the Georgian Dream government used this sector to create an illusion of continued high growth in 2025 to compensate for its low political legitimacy.

The War Dividend Is Fading – What Comes Next? Much of Georgia's economic boom since 2022 has been linked, directly or indirectly, to the Russia-Ukraine war, including financial inflows, Russian and Ukrainian migrants, re-export trade, and elevated transit demand. As these effects gradually normalize, what risks and opportunities do Georgia's economy face, and is there any serious strategy in place to replace these windfall gains with sustainable foundations?

Currently, the main risk factor for the Georgian economy is, ironically, the potential end of the Russia-Ukraine war. The government failed to use the 2022-2024 economic boost to implement necessary structural reforms. Now, the economy faces the end of these "war benefits" with many vulnerabilities. For instance, wages have increased significantly, but this might not reflect a real increase in labour competitiveness. While businesses try to hire foreigners to address labour shortages and high labour costs, the government has introduced regulatory restrictions due to political risks, further endangering the business environment. Rapid wage growth was accompanied by price increases, which hit low-income and unemployed populations the hardest. The government’s nervous, manual interventions show it lacks a real answer to these challenges. Additionally, there is a risk that the global ICT sector could suddenly exit Georgia (e.g., moving to Armenia), causing about 5% of Georgia's virtual GDP to vanish from statistics, which will cause a major economic downturn on paper.

The Middle Corridor: Genuine Transformation or Infrastructure Hype? Freight volumes through Georgia along the Trans-Caspian Middle Corridor have surged dramatically in recent years, and the East-West railway modernization has significantly raised capacity. Is Georgia genuinely capitalizing on this window of opportunity, or are the headline numbers outpacing the country's actual logistical, institutional, and financial readiness to become a true Eurasian transit hub?

At this stage, the Middle Corridor remains more of a "hype" and a distant prospect. Recent stagnation in cargo volumes suggests that participating countries are not investing enough resources to utilize existing opportunities. Regarding Georgia, the failure to reform Georgian Railway showcases that the government is not ready to support this process properly. Meanwhile, the geopolitical reality has shifted, and Georgia is no longer seen as an exclusive element of this corridor. The TRIPP project has put this exclusive status at risk, and damaged relations with the EU have cost Georgia its status as a reliable partner. After the war in Ukraine ends, the logistics and transportation sectors in Georgia will face high risks of stagnation, a challenge that a responsible government should be addressing by properly promoting the Middle. Unfortunately, it remains just a buzzword for the government, which it utilizes to compensate for its low political legitimacy during various international events.

TRIPP, Anaklia, and Competing Routes The emergence of TRIPP, the U.S.-backed corridor through the Zangezur route, alongside ongoing questions about the Anaklia deep-sea port, raises serious questions about Georgia's long-term transit relevance. How should we read these developments: are they existential threats to Georgia's strategic position, or opportunities that a well-governed Georgia could turn to its advantage?

As Russian political influence wanes in Azerbaijan and Armenia, Georgia appears to be the "weak link" in the South Caucasus that could threaten the full realization of the Middle Corridor. TRIPP is the West's response to this risk, which ultimately threatens Georgia’s geopolitical relevance. Georgia is losing its status as an exclusive member of the Middle Corridor. At the same time, the government’s irresponsible foreign policy has made it an undesirable partner for the EU, and there is a risk that other players may also stop viewing Georgia as a reliable trade and economic partner.

Transit Hub vs. Transit Pipe: Where Is the Value-Added Strategy? Georgia earns transit fees but largely watches higher-value activities such as logistics services, warehousing, trade finance, and insurance flow to other regional and international jurisdictions. What would a credible national strategy look like for capturing more economic value from its corridor position, and what political and structural obstacles currently stand in the way?

Georgia’s strategic objective should be to become an exclusive transit hub for trade between China/Central Asia and the EU. This is crucial as China remains a top trading partner for the EU, and Central Asia is a new strategic direction. This requires a sensible foreign policy and good relations with the EU, China, and neighbors, while ensuring that Georgia's sovereignty is protected from Russian influence. Unfortunately, in the last three years, Georgia has failed in all directions, worsening its positioning and becoming a geopolitical risk factor rather than a partner.

The Shadow Economy and Illicit Flows Estimates suggest that a substantial share of Georgia's economic activity, with some putting it as high as half, occurs outside the formal sector. With Georgia also serving as a key re-export hub for goods flowing toward sanctioned Russia, how significant is the grey and shadow economy in understanding Georgia's recent growth, and what are the long-term legal, reputational, and macroeconomic consequences of this?

When discussing the capital inflow since 2022, we must consider informal channels as well. Based on public information, Georgia has emerged as a destination for illegal currency inflows and outflows. Another major element is the large amount of cash or cryptocurrency entering the country through so-called "call center" related activities. Finally, the construction sector likely involves informal capital on the supply side and "grey money" investments (e.g., from Russia) on the demand side.

The South Caucasus Dimension: Does Regional Peace Help or Hurt Georgia? A potential Armenia-Azerbaijan peace settlement and the prospect of new direct regional routes could fundamentally reshape the South Caucasus economy. On balance, does greater regional stability and connectivity serve Georgia's economic interests, or does it dilute the indispensable corridor role that has underpinned much of Georgia's recent growth?

On the one hand, peace in the South Caucasus, under current conditions, may actually threaten Georgia’s strategic geopolitical and geo-economic positioning, putting its security and economic development at risk. On the other hand, a more integrated South Caucasus means more internal trade opportunities. For an open economy like Georgia, this is an opportunity, but only if the country increases its competitiveness - an area where the government has seen little success lately.

Political Isolation and Economic Resilience: How Long Can They Coexist? Georgia is currently outperforming its neighbors by most macroeconomic indicators, yet it is simultaneously estranged from the EU, with accession negotiations suspended and relations with Western partners deteriorating. What is the concrete, measurable economic cost of this political trajectory in terms of foreign investment, institutional quality, market access, and long-term competitiveness, and how long can strong growth numbers mask these structural vulnerabilities?

As soon as the war ends, all weaknesses of the Georgian economy will become visible (some are already apparent, such as stagnant tax revenues, declining employment figures in 2025, and slowing wage growth in 2025). Georgia will face this potential crisis with many structural challenges. Being detached from the Western world will also reduce its relevance in the eyes of the East. This explains the government's "hysterical" attempts to fix relations with the U.S. administration after burning bridges with the EU. Signs of crisis are already being felt by the population, and while the ruling party senses this, it lacks the political and human resources to solve it.

Practical Reforms for a More Competitive, Open, and Equitable Economy. Beyond macroeconomic performance, Georgia faces deeper structural challenges, including heavy economic concentration, weak capital markets, limited wealth distribution, and an economy that remains dependent on a narrow set of sectors and elite networks. In practical terms, what reforms would you argue are most urgently needed to make Georgia's economy more diversified, more competitive, more internally open, and more equitable, with fairer access to capital, less hierarchical concentration of wealth and ownership, and genuinely better outcomes for ordinary citizens?

Given the challenges mentioned above, as the Georgian economy begins to contract, the primary risk it faces is becoming more closed and concentrated. There is a danger that key business sectors could fall into the hands of sectoral oligarchs, who would then use regulations to establish control over the economy. The first signs of this trend are already visible. Therefore, the first critical step must be to maintain the status quo of the previous decade, when Georgia was characterized as an open, business-friendly, and free economy. As for the reforms, I would list a few that definitely require an answer:

1. General Education Reform: School education in Georgia cannot withstand any criticism. Schools have been turned into polling stations, and school personnel into an election administration whose sole function is to support the ruling party in elections. The entire school education system must be completely revised if Georgia wants to be competitive globally in the 21st century.

2. Public Administration Reform: In recent years, many 'purges' have occurred in the public sector, making it weaker and less competitive. Georgia needs a small but very strong state apparatus.

3. Financial Sector Reform: Today, the banking sector remains the only real source of financing for businesses and citizens. The world is changing, and financing methods are changing too; they are becoming cheaper for everyone. Major changes are needed in Georgia’s financial sphere.

4. Tourism Sector Reform: Currently, Georgia is a provider of low-quality services in the tourism sector. It is necessary to take the educational direction to a new level so that the services tourists receive in Georgia are of the highest quality and high value.

5. Agricultural System Reform: Our agricultural system is not competitive, innovative, or technologically advanced. Painful structural reforms must be implemented to change this.

6. Social Assistance System Reform: Today, the social assistance system helps the needy to stay needy. This system needs to be rebuilt from the ground up.

Expectations, Risks, and the Road Ahead. Looking at the trajectory of Georgia's economy over the next five to ten years, what are the most likely scenarios, the most important structural tendencies you expect to play out, and the most underappreciated risks on the horizon? And if you could identify the single most decisive factor that will determine whether Georgia fulfills or squanders its economic potential, what would it be?

The highest risk facing the Georgian economy today is as follows: after the unexpected and unearned economic upswing of the last 4-5 years, Georgia, alongside an economic slowdown, will soon face a socio-political crisis. The government’s likely response to this will be to further close and control the economy and increase the level of autocracy in the country at the cost of democratic freedoms. At the end of the day, this will lead to political and economic isolation, which will most likely significantly increase Georgia's dependence on Russia. To avoid this risk, Georgia must remain an open economy and a state with a democratic order. Otherwise, returning to the Russian orbit will become inevitable.

Interview conducted by Luka Okropirashvili for Caucasus Watch