Georgia’s Economic Perspective is ‘Down But Stable’
01 May, 2015
Georgia’s Economic Perspective is ‘Down But Stable’
On April 17, the international rating agency Fitch changed its outlook on Georgia’s long-term foreign and local currency Issuer Default Ratings (IDR) to Stable from Positive and rated the IDRs at “BB-”. However, the Georgian government claims the rating has not worsened and does not hurry to correct the state budget spending.

“The report should’ve been way more critical,” says President of New Economic School Paata Chechelidze who doesn’t find the Fitch assessment comprehensive. He claims that it exaggerates the
role of external factors and glosses over the role of internal negative factors that have also dealt a big blow to Georgian economy.

According to Fitch experts, the external sector remains Georgia’s main weakness. The key reasons for Georgia’s downgrade were the multiple external shocks affecting Georgia. They followed the lower oil price/sanctions-induced downturn in Russia. The Russian economic crisis spilled over to surrounding CIS economies, triggering a wave of currency devaluation in trading partner countries. These developments have had a highly adverse impact on Georgian trade and remittances: Exports have fallen sharply, while remittances are down about 25 percent and Georgia’s national currency has depreciated against the USD by about 30 percent from its 2011-13 levels.
The depreciation will also push net external debt up from 58 percent of GDP in 2014 to nearly 80 percent in 2015, far above the “BB” rating median of 15 percent. Economic growth is expected to slow markedly to 2 percent in 2015 from 4.8 percent in 2014, primarily due to spillovers from the regional economic downturn. Fitch predicts the 2015 general government deficit reaching about 3.5 percent of GDP. Georgian analysts fear this means more foreign debt for the Georgian state.
Paata Sheshelidze, President of New Economic School, thinks the Fitch downgrade is quite mild and that it could actually be far harsher. According to him, one of the key messages of the Fitch report is that it questions the capability of the Georgian government to pay off debts.
The point is that according to Georgian law, the critical level of foreign debt for the government is 60 percent of GDP. The latest statistic suggests that it already reaches roughly 40-45 percent. However, the currency depreciation increases the risk of the share of foreign currency-denominated debt nearing its limits this year.
“The depreciation of the lari will push general government debt above 43 percent of GDP in 2015. Despite the high share of concessional or near-concessional debt, debt dynamics remain vulnerable to further exchange rate developments,” the Fitch analysis states.
Sheshelidze believes the Fitch experts think that the state spends too much and if this goes ahead, it will need to take out more loans. On the other hand, he doesn’t find the Fitch assessment comprehensive. It exaggerates the role of external factors and glosses over the role of internal negative factors that have also dealt a big blow to Georgian economy.

“The Georgian government introduced tax remissions for Georgian car exporters only a couple of days ago – This is delayed action at its finest.”

“The report should’ve been way more critical. For instance, they say the major problem was external factors, but the external factors were not all negative. By that I mean that some products we import, such as oil and sugar, have become cheaper. On the other hand, some negative internal factors were not taken into consideration at all. These factors include increasing of budget, excise and share of state programs, as well as business being replaced by state bureaucracy,” Sheshelidze elaborated.
But the major defect of Fitch analysis is its full support of the National Bank’s policy. Sheshelidze, on the contrary, believes that the bank has played a negative role in the depreciation of national currency.
“The NBG put fuel on the fire when it issued a big emission of money in December and boosted the currency’s devaluation. Besides, its reaction to the unfolding events was delayed and insufficient. The Georgian government also failed to undertake timely actions to diminish the external risks. For instance, Azerbaijan prohibited the import of cars that were produced before 2005. We knew it would happen long before this law took effect, but the Georgian government’s reaction to this amounted to zero [even though car re-export tops Georgia’s total exports – Ed.]. It introduced tax remissions for Georgian car exporters only a couple of days ago – This is delayed action at its finest. There were many other factors as well, and now we are witnessing the results of apathy and inactivity. If all this was taken into account by Fitch, they might have not just revised expectations but actually cut Georgia’s rating further down,” Sheshelidze claimed.
Soso Archvadze, an economic analyst, does not find Fitch rating downgrade as scary, however.
“This is merely a prognosis, not reality,” he says. “It doesn’t mean that the state debt will cross the critical level of 60 percent. The point is that we are paying off more liabilities than we are taking. Besides, we cannot physically take enough in loans to cross that boundary. The state debt is around 5 billion USD – it is roughly 40-45 percent of GDP at the moment, with the total GDP being 16 billion. To reach 60 percent of this in 2015, we need to borrow several billion, and such an amount of money is impossible to spend in a small economy like ours. We barely spend a billion in investments annually.”
Nevertheless, Archvadze acknowledges that due to currency depreciation, the Georgian government may face a need for new loans. And since its economic outlook was downgraded, the loans may become more expensive. But he does not think the negative revision of expectations by Fitch will turn investors off.
“It’s the other way around, actually: Depreciation of the lari may attract foreign investors because this cuts business operation costs here,” Archvadze concludes.

Other Stories
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
Georgia second among the fastest growing tourist destinations in Europe
Georgia is among the fastest growing tourist destinations in Europe. The data is published by the UN World Tourism Organization.
Bitmain launches world digital mining summit in Tbilisi, Georgia
Bitmain CEO Jihan Wu and Roger Ver, CEO of Head Speaker List featuring Circle, and Genesis Mining when Digital Mining Leaders Convene In Tbilisi on September 21-23
TBC Bank and Gazelle Finance have teamed-up to support Medical City, a leading healthcare provider in the western region of Georgia to launch the Western Regional Center Of Modern Medical Technologies.

Exchange Rates
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
January 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31