Page 38 - GEORptOct21

Georgians drowning in debt
The government debt, which also increased along with the expanded budget deficit, is set to go beyond the 60% margin in 2021. In this context, it is relevant to mention that the government is planning to roll over its $500mn eurobond in 2021, to preserve international reserves. Repaying the eurobond from government deposits rather than refinancing it would reduce the 2021 debt ratio by 2.8pp of GDP.
The largest creditors of the state of Georgia are Asian Development Bank (ADB), World Bank International Development Association (IDA), European Investment Bank (EIB) and International Bank for Reconstruction and Development (IBRD).
The debt owed to IDA is GEL2.85bn ($935mn), the ADB debt stands at GEL4.36bn ($1.43bn) and the EIB debt is GEL1.88bn ($620mn). Gross external debt include both public sector (general government, public corporations and national bank) and private sector (banking and other sectors) external debt.
Over the last several years, Georgians have been sliding into debt.
Roughly 80% of Georgia’s households owed a collective $5.5bn (31% of GDP) on bank loans in 2018, the last year for which detailed figures are available from the National Bank. Unknown amounts are owed to subprime lenders. The figure puts Georgia towards the top of the list of European countries in terms of the amount of consumer loans relative to the size of the national economy, and significantly higher than neighbours Armenia and Azerbaijan.
While well-off households can take loans to improve their financial flexibility, an increasing amount of debt is being taken on by the poorest Georgians, for whom it can exacerbate their precarious situation, a 2018 World Bank study found.
In the richest European countries, such as France and Germany, banks do offer household loans at an average interest rate of 4%, while in Georgia it’s a steep 17%, according to National Bank data. Payday loan companies offer even higher interest rates in exchange for lax credit history checks, luring many Georgians into a debt trap.
Given the country’s meagre pensions, elderly Georgians – unless they are supported by their children – usually need to borrow money just for day-to-day expenses. About half of retired Georgians have bank loans. And the institution that has a virtual monopoly on the distribution of pensions, Liberty Bank, also
38 GEORGIA Country Report October 2021 www.intellinews.com