IMF assesses how peace in the South Caucasus could reshape trade and investment flows

A peace agreement between Azerbaijan and Armenia could significantly alter the logistics landscape of the South Caucasus, opening alternative trade routes that bypass Georgia.

According to Report, this assessment is included in the International Monetary Fund (IMF) mission's conclusion following the 2026 Article IV consultation with Georgia.

The IMF notes that such a scenario could enhance the investment attractiveness of the entire region.

However, geopolitical uncertainty remains a key risk factor. In particular, escalation of the conflict in the Middle East could reduce tourist flows from Israel and the Persian Gulf countries, accelerate inflation, and tighten global financial conditions.

At the same time, in the case of a protracted conflict, the opposite effect is also possible - a reallocation of financial and tourist flows in favor of Georgia, as well as increased transit along the Middle Corridor.

The IMF separately considers a scenario of peace in Ukraine. While such a settlement could reduce some economic gains Georgia has received from migrant inflows, capital, and transit trade growth, enhanced regional stability would strengthen investor confidence.

The same logic applies to the South Caucasus. The IMF believes that a potential peace agreement between Azerbaijan and Armenia would create new transport routes partially bypassing Georgia, while overall having a positive impact on the region"s investment climate.

Among domestic risk factors, the IMF highlights potential deterioration in relations with the European Union, which could negatively affect investor sentiment and inflows of foreign direct investment.

At the same time, a major real estate investment project in Georgia, valued at $6.6 billion and backed by a UAE investor, presents significant potential for economic growth and job creation.