Fitch Leaves Georgia at 'BB-'Outlook Positive

Global rating agency Fitch Ratings has affirmed Georgia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable Outlook.

The agency reports that Georgia's ratings are supported by governance and business environment indicators that are above the current medians of 'BB' category peers, and a track record of macroeconomic resilience against regional shocks. Confidence in the authorities' economic strategy is also anchored by an IMF Extended Fund Facility (EFF) program.

However, Fitch believes Georgia's external finances are “significantly weaker” than the majority of 'BB' category peers.

The agency noted that Georgia is facing a new external shock after Russia suspended flights to and from Georgia from 8 July.

“Dynamic tourism exports and lower import growth following the completion of large energy projects led to a narrowing of the current account deficit to 7.7% of GDP in 2018, from 8.8% in 2017. Fitch forecasts the current account deficit will narrow further to an average of 5.3% over 2019-2021 versus 3% for the current 'BB' median, as a slowdown in consumer lending and rising domestic savings following the launching of the funded pension pillar ease pressure on imports,” the information reads.

Fitch says the flight ban will partly reverse the recent rapid improvement in tourism revenues, with international visitors' growth slowing to 4.3% YoY in July, from 19.9% in June, but it expects continued growth over the forecast period.

According to the agency, net inflows of foreign direct investment (FDI) are forecast to cover the current account deficit each year. Net FDI is projected to average 5.9% of GDP over 2019-2021, after declining to 5.5% in 2018 from 10.8% in 2017 due to the completion of major infrastructure and energy projects.

Fitch forecasts economic growth to decelerate to 4.3% in 2019, from 4.7% in 2018, as credit growth slows down and the Russian flight ban hinders the expansion of the tourism sector. Nonetheless, it will remain above the forecast current 'BB' median of 3.3%. Acceleration of infrastructure spending and slightly looser fiscal policy will support a pick-up in growth to an average 4.7% in 2020-2021.

The report also notes governance and business environment indicators are well above the current medians of 'BB' category peers, with Georgia ranking 6th out of 190 in the 2019 World Bank Ease of Doing Business Indicator.

Georgia’s Ministry of Economy and Sustainable Development says keeping Georgia’s ratings unchanged in the context of the current situation in the region and global trade tensions is an important positive factor, further enhancing the confidence of international institutions and investors in Georgia and positively impacting the country's business environment.

Minister of Economy, Natia Turnava says the main challenges named by Fitch – travel embargo imposed by Russia and the reduced number of tourists is the main reason for instability in the country.

“Although Georgia's economic growth forecast has fallen by 0.3 percentage points, the Georgian government will do its best to complete 2019 at a high rate,” she said.