Georgia's decision to delay its EU accession progress until 2028, coupled with ongoing mass protests, has cast a shadow over its economic prospects, as pointed out by major Georgian companies and banks, as well as international rating agency Fitch Ratings. 

While Georgia is among the fastest-growing countries in the Emerging Europe region, a dip in foreign direct investment (FDI) has just been reported in the third quarter, following mass protests over the Russia-inspired “foreign agents” law earlier in the year. The country is now gripped by a new wave of mass protests over the contested October general election and the ruling Georgian Dream party’s subsequent decision to put EU accession efforts on hold. 

On December 6, Fitch revised Georgia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) outlook from stable to negative, while affirming the IDR at 'BB'. According to a statement from the agency, the change to the outlook reflects the mounting risks posed by political instability and deteriorating relations with key international partners.

Political volatility fuels uncertainty

Fitch's report highlighted heightened political risks following Georgia’s October parliamentary elections. The ruling Georgian Dream party retained its majority, but the opposition and many Western countries have refused to recognise the results, citing electoral fraud. 

The nightly mass protests that started on November 28 show no sign of dwindling, with a series of beatings and arrests of protesters and opposition leaders only fuelling the determination of the tens of thousands of Georgians that turn out every night in protest. 

The presidential election on December 14 is expected to further inflame tensions, with incumbent President Salome Zourabichvili pre-emptively refusing to step down, saying that a new president cannot be appointed until there is a legitimately elected parliament.

“Political and societal polarisation have notably increased,” Fitch stated, warning that the ongoing crisis could erode investor confidence, weaken public institutions, and strain external liquidity. Governance indicators – long a strength for Georgia compared to its peers – are now at risk of deterioration.

“ A protracted political crisis could undermine the institutional framework and affect investor and domestic confidence, exerting pressure on external liquidity and the exchange rate. Combined with weakened trust in public institutions, this will likely negatively affect Georgia's governance indicators, a long-standing strength relative to peers,” the rating agency said. 

The European Commission previously warned in its Autumn Forecast released in November of the significant uncertainty in its predictions due to Georgia’s unstable domestic political situation and EU integration process, which could have an impact on business and consumer confidence. 

The decision to postpone EU accession talks, despite overwhelming public support for membership, has sparked widespread discontent. An estimated 85% of Georgians favour EU integration, enshrined in Article 78 of the Constitution. 

"If unrest escalates, relations with key Western countries could be further strained, potentially leading to lower foreign direct investment (FDI) inflows or multilateral disbursements,” the statement added. 

The repercussions of Georgia's geopolitical pivot are already evident in its budget projections. The Ministry of Finance’s 2025 budget, approved by the new parliament in December, shows a decline in grant revenues. EU grants have been suspended, with Georgian Dream saying it will reject any budgetary support grants for the next four years. 

Western countries including the Baltic states and Canada have announced they plan to sanction key Georgian officials. The US has also suspended its strategic partnership with Georgia.

Business community raises alarm

The business sector has reacted strongly to Prime Minister Irakli Kobakhidze’s announcement that the government is suspending progress on EU accession. Leading companies, including telcos MagtiCom and Silknet, have issued statements condemning the government’s actions, describing EU membership as “the only path forward”. Georgia’s largest banks, TBC and Bank of Georgia, echoed these concerns, with the latter declaring: “Do not stop the European path!”

TBC Bank pointed to the constitutional mandate for EU integration and stressed its historical significance for Georgia’s economic and democratic future. “Any delay or suspension of European integration runs counter to the will of the Georgian people,” it said. 

The Georgian Business Association warned that the government’s decision would isolate the country from Western partners and jeopardise economic stability.

“We strongly disagree with the decision of the Georgian Dream leadership to halt talks on the bid to join the European Union until 2028. By aborting the EU accession process, Georgia is at great risk of missing the window of opportunity to join the Union, a window created by recent geopolitical changes in the region,” the association said. 

“This decision will further isolate Georgia from its long-term Western partners. These partnerships are crucial to Georgia’s economy, democracy and security,” it added in a statement carried by Georgian media. 

"Unacceptable" to suspend cooperation with Europe

Tskali Margebeli, producer of Nabeghlavi mineral water and other brands, was the latest to issue a statement distancing itself from Georgian Dream’s position. 

"JSC Tskal Margebeli has a 27-year history and has been one of the pioneers in establishing Western culture in the Georgian national industry since its establishment,” the company said in a Facebook post. 

“Today it represents a successful example of Georgian-European joint business. Accordingly, it is categorically unacceptable for us to suspend cooperation with Europe even for a day. We condemn violence against any citizen who fights for a better future for the country and the establishment of Western values! We remain firmly committed to the course defined by Article 78 of the Constitution of Georgia!” 

Internationally listed Georgian stocks have also felt the impact. Shares in UK-listed Georgia Capital and London-listed banks TBC and Bank of Georgia dropped following the EU postponement announcement, after previously dipping amid the protests in spring 2024 and ahead of election day.

Meanwhile, the Georgian lari fell against the euro and the US dollar at the end of November, although it has since partially recovered. 

Natia Turnava, acting governor of the National Bank of Georgia, said on December 5 that the bank has “all necessary tools” to intervene in stabilising the lari, Georgia’s national currency if needed. 

Addressing the Budget and Finance Committee in Parliament, Turnava discussed concerns over exchange rate fluctuations amid political instability and ongoing public protests triggered by the government’s decision to suspend European Union accession talks, as reported by local media.

She acknowledged that the political climate had caused “some agitation” in the market but expressed confidence that “as the situation normalises, pressure on the exchange rate would ease”. 

Meanwhile, foreign direct investment in the third quarter of 2024 dropped by 55.2% compared to the same period in 2023, according to statistics office Geostat.

A missed opportunity

Georgian Dream has ambitious plans to expand the economy, specifically to raise GDP to GEL130bn over the next four years, as outlined by Kobakhidze when announcing his new government on December 2. 

However, the suspension of EU accession talks and Nato’s recent omission of Georgia from its membership commitments risk undoing years of progress. The benefits of EU membership have been clear in Central and Southeast Europe, while aspiring members such as Moldova and the Western Balkan states have benefited from increased investment and growth as their acceptance as their acceptance as candidate countries sends out a strong positive signal to investors. 

Conversely, Georgia’s decision to step back from integration has rattled investor confidence, further exacerbated by prolonged protests. The country’s recent growth has partly been driven by an increase in trade with Russia amid international sanctions. But international financial institutions (IFIs) say the impact of this is already fading in the Caucasus countries. Meanwhile, Georgia risks missing out on the pre-accession boost enjoyed by other EU candidate countries.