Municipal Election Victory To Facilitate Policy Reform

A landslide victory for the governing Georgian Dream (GD) coalition in Georgia's second-round municipal elections will allow for much smoother implementation of government policy across the country, which will accelerate the pace of crucial political and economic reforms required to further integration with the EU. The run-offs were held where candidates for mayor or the position of gamgebeli (head of provincial municipality) had not received a 50%+1 vote share in the first round of elections held on June 15. We believe that given all 12 city mayoralties (including the capital Tbilisi) and the 13 gamgebelis are now held by the GD coalition, the central government will find it easier to implement reforms countrywide.

Previously a large number of Georgia's cities and districts were controlled by the opposition United National Movement (UNM), which had hindered the implementation of reforms brought in by the GD coalition since its election victory in October 2012. This was highlighted in our proprietary short-term political risk ratings, where Georgia scored poorly in the 'policy enforcement' section of the 'policy-making process' subcomponent. However, on the back of the municipal election results we have raised this subcomponent's score, which lifts Georgia's overall short-term political risk rating from 56.0 to 57.7 out of 100.

We have previously highlighted the struggle that the Georgian government will face as it attempts to implement both political and economic reforms in order to progress further down the path of EU integration ( see 'EU Integration To Hit Russia Trade', 18 April). While we still expect the reform process to prove arduous, controlling every level of political administration in the country will undoubtedly make it easier for the government to implement changes in areas such as local judiciaries and municipal tax reform. The EU has highlighted these areas, among others, as crucial for gaining additional funding under the 'More for More' principle, where the greater the scope of reforms enacted the more external funding is provided. This provides an upside risk to our real GDP growth forecasts, as a greater flow of external financing will assist in spurring greater fixed investment, even in the face of a slowdown in trade with Russia.

GD Gains Control Of Capital
Georgia - Result of Tbilisi Mayoral Election Run-Off, % of Vote

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Related sectors of this article: Political Risk, Domestic Politics
Geography: Georgia

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