Georgia’s credit score has been increased

Georgia continues to reap the benefits of geopolitical shifts in the region after the start of Russia’s military operation in Ukraine. Having assessed the economic growth of the country as a result of a significant influx of emigrants and remittances from the Russian Federation, as well as the development of parallel imports with the redirection of transit flows to the South Caucasus corridor, the international rating agency Fitch changed the assessment of the prospects for the sovereign credit rating of Georgia from “stable” to “positive”, the rating itself was upgraded from BB– to BB with the prospect of further growth.

The Fitch report on the prerequisites for an upgrade of Georgia’s credit rating says that the country managed to achieve “very high GDP growth” – 10.3% in 2022 – and reduce public debt. The agency explains the growth of Georgia’s international foreign exchange reserves with “a rapid recovery in tourism”, as well as “a large influx of migrants and capital from Russia.” Fitch calls the Irakli Garibashvili government’s monetary policy “prudent”: “a tough approach in the monetary sphere”, containment of budget spending and reduction of the budget deficit. The agency predicts that “the influx of migrants and capital from Russia will not decrease” in 2023, partly due to the “protracted nature of the war in Ukraine” and as “migrants are increasingly integrated into the Georgian economy”, which “will give prerequisites for further improvement of Georgia’s rating”.

Factors related to the Russian military operation led to the strengthening of the lari by 13% against the US dollar and the growth of the country’s international reserves by $0.6 billion, to $4.9 billion. Fitch expects Georgia’s foreign exchange reserves to be sufficient by the end of 2024 year will be 3.3 months of current external payments compared to 3.2 months at the end of 2022, and the budget deficit will be 2.6% of GDP in 2023, noting Georgia’s “good reputation” in the field of fiscal discipline, the fight against corruption, and also in the area of ​​corporate governance reforms for state-owned enterprises. According to Fitch, Georgia’s public debt has already fallen to 40.1% of GDP and will continue to decline (to 39.7% in 2024). President of the National Bank of Georgia Koba Gvenetadze, commenting on the Fitch report, called the assessment of the rating agency a “logical step” towards improving the country’s credit rating to investment in the near future.

Among the weaknesses of the Georgian economy, Fitch points to high inflation: in 2022, it slowed down from 13.3% in May to 9.8% in December, with a baseline of 6.8%, well above the National Bank of Georgia’s target of 3%. The agency forecasts that inflation will fall to 5.2% at the end of 2023 as a result of the effects of currency appreciation, lower global commodity prices and demand normalization.

The rating upgrade was a political boost for the ruling Georgian Dream Party (GM). “In conditions when the opposition accuses GM of pursuing a pro-Russian policy, the authorities have an opportunity to demonstrate to voters that this policy leads to an increase in their well-being,” said David Avalishvili, an analyst with the Nation.ge news agency, in an interview with Kommersant. In his opinion, on the eve of the decisive parliamentary elections in 2024, “the authorities will only increase the political tilt towards Moscow in order not to lose achievements in the economy.” However, Fitch also claims “the influence of geopolitical factors”, noting that Georgia “is exposed to risks due to unresolved conflicts in Abkhazia and South Ossetia involving Russia”, and the government’s efforts “to manage relations with Russia potentially complicate the task of obtaining candidate status to EU members.

Giorgi Dvali, Tbilisi