Fitch Maintains Georgia's Credit Rating at BB, Outlook is ‘Broadly Stable’
By Natalia Kochiashvili
Tuesday, February 8, 2022
Global financial rating agency Fitch, once again affirmed Georgia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) status with a BB rating, assessing the country’s financial developments ‘broadly stable’.
According to the agency’s update on February 4, compared to other countries with a BB rating, Georgia's effective and credible policy framework and stronger governance indicators reinforce the country's rating position.
Long-term support from official lenders has reduced macro stability risks and provided the necessary financing. In terms of credit, these strengths are balanced by the substantial currency risks of public debt, high financial dollarization, and weak foreign sector finances compared to other countries with the same rating. The report also says ‘despite the pandemic shock, Georgian banks managed to increase their regulatory capital buffers’. According to the rating agency, the weaknesses remain the external vulnerability and the high current account deficit.
The rating agency also notes that annual inflation rose to 13.9% in December, reflecting rising prices in world commodity markets, the depreciation of national currency - lari and rising utility bills.
Given the significantly higher inflation than the 3% target and increased short-term inflation expectations, the National Bank has tightened monetary policy and raised the policy rate by a total of 250 basis points, from 8% to 10.5 percent.
“We expect the NBG to maintain a tough policy in 2022 as well. Following in the footsteps of the high baseline effects, inflation should start to decline from the 2nd quarter of 2022. However, long-term maintenance of high inflation expectations is a vulnerability. We forecast an average of 7% annual inflation in 2022, after 9.6% in 2021,” the organization said.
Fitch also notes that the negative impact of the high current account deficit on credit ratings is offset by strong and consistent macro policies, including a credible monetary policy framework and prudent fiscal strategy. The combination of these policies has historically demonstrated resilience to external shocks, including adverse events in major trading partner countries, and reduced the risks to macroeconomic stability.
Fitch forecasts Georgia's economy to expand by 5.5% in 2022 and by 5.3% in 2023, additionally, projecting the recovery in the tourism sector of Georgia to pick up. It also says that credit growth in the country is ‘also robust, consistent with the acceleration in GDP.’
Note that in 2021, the estimated real GDP in Georgia increased by 10.6% compared to the previous year. However, Fitch says risks to its GDP outlook on Georgia remain on the downside, in addition to uncertainty due to the pandemic - ‘Georgia is currently experiencing a significant fourth wave of Covid-19 cases, while its vaccination rate remains low’.
As for fiscal policy, the international credit rating agency projects Georgia's general government fiscal deficit to narrow to 4.4% of GDP in 2022, after an estimated 6.1% of GDP in 2021.
The report also underscores that it doesn't expect the polarised domestic politics to ‘infringe on Georgia's credible policy framework and relationship with official creditors.’
The Deputy Minister of Finance, Mirza Gelashvili commented on the updated rating, emphasizing that in the post-pandemic period Georgia was able to maintain its credit rating.
“It is very important that we are already facing a rapid recovery of macroeconomic stability. This, naturally, is reflected in economic growth, primarily in reducing fiscal deficits and government debt. You know that by the end of 2021, we had reduced debt by about 10% and its volume had dropped from 60.2% to around 50%.” Gelashvili said, explaining that this doesn’t only contribute to economic growth, but also macroeconomic stability.
