Georgia’s economy will contract by 1.5% in 2009 because of “street politics” and “crisis of political relations”, the government said in a statement on June 1.

The trend will also be reflected on tax revenues, which will be lower than initially planned, according to the statement. In first five months of this year tax revenues fell short of initially planned target by GEL 7 million, according to the official estimations.

The government also said that it expected that growth would have reached 1% in the first quarter of this year. It said that initial positive estimations were based on the expectation that due to reforms carried out in previous years it would have been possible to attract investments and it hoped that by the end of 2009 Georgia would have had “although low, but positive growth.”

“However, unfortunately we have almost totally lost the first half of the year, because of the crisis of political relations,” the statement reads. “The existing situation was reflected on the confidence of both local business and investors towards the country in general. Volume of exports and imports decreased; turnover of enterprises decreased; many investors have delayed investments. Possibility of attraction of investments and putting the economy to operate in full value became impossible. It is now only possible to make it real in the third and fourth quarters.”

“As a result of ‘street politics’ we have a forecast now, according to which economy may contract in 2009 by 1.5%,” the statement reads.

The government’s statement, however, also says that reduced tax revenues would be balanced by non-tax revenues, mainly in forms of “assistance from international donors.”

In a statement released on May 19 ex-PM Zurab Nogaideli’s party, Movement for Fair Georgia, warned that the state budget might face GEL 1 billion shortfall by the end of the year. The party claimed that the estimation was made based on analysis of budgetary revenues in January-April. It said that in January budgetary revenues were 9% lower than in the same period of 2008; in February it was reduced by 14% against last February; in March – by10% and in April – by 20%.

According to IMF with the double impact of the August 2008 war and the global crisis Georgia’s economic growth “suffered a dramatic decline” from 12.4% in 2007 to an estimated 2% in 2008, after a sharp contraction in the second half of 2008.