TBILISI (Bloomberg) -- Georgia’s economy, which entered recession in the fourth quarter of last year after the former Soviet republic’s war with Russia, may expand 2 percent in 2010, the prime minister said.

Nika Gilauri said the government is sticking by its forecast of a 1.5 percent decline in gross domestic product this year. In a July 30 letter of intent to the International Monetary Fund, Georgia’s government said it’s “prepared for a larger contraction” and in budget planning assumes the economy will shrink 4 percent.
“Four percent is our worst-case scenario, while zero growth is the best case,” Gilauri said by telephone late yesterday. “For now we’re holding to our estimate of a 1.5 percent contraction.”
The IMF’s executive board earlier this month boosted a loan to Georgia by more than 50 percent to $1.17 billion to help the country cope with a global economic slump that is deterring investors.
In its letter to the IMF, the Georgian government said next year’s economic growth will be driven by exports and a “strong recovery” in foreign direct investment, which fell to $125 million in the first quarter from $538 million in the year- earlier period.
As a result, the government expects nominal GDP to be 19 billion lari ($11.4 billion at today’s exchange rate) in 2010, according to the letter. The country’s GDP is currently $12.8 billion.
Gilauri said the projected decline in dollar terms “will be mainly due to the exchange rate” and factors in the possibility of a contraction greater than 1.5 percent in 2009.
Russia routed Georgia’s U.S.-trained army in the war last August over the separatist region of South Ossetia that caused $1 billion in damage to Georgia’s economy. The Black Sea country won pledges of $4.55 billion in international aid in the wake of the war, including a $1 billion offer by the U.S.
In May, the IMF said Georgia’s economic performance this year “largely” depends on donated cash.