Page 50 - GEORptOct21

Fitch affirms Georgia’s BB/negative rating, expects more structural reforms
the external gap’s financing further shifts to debt-generating rather than equity-based instruments.
“The recovery in the tourism sector is likely to lag the global rollout of vaccines, and we do not project a return to 2019 levels of tourist activity through 2024. Coupled with a more volatile domestic political and policy environment, this could cloud the medium-term outlook for foreign investment inflows — important for growth and external financing, in our view,” S&P analysts explained.
S&P projects Georgia's real GDP will grow by 4% in 2021 after contracting by 6% in 2020.
Economic activity, including in the beleaguered hospitality sector, will benefit from the relaxation of containment measures. Restrictions were reimposed after a sharp spike in COVID-19 cases in the last quarter of 2020. The continuation of some government support measures into 2021 should also support growth.
“While we think the opposition's demand for fresh elections is unlikely to be met, there is room for other political concessions that could end the deadlock. Former prime minister Giorgi Gakharia's recent resignation over the sentencing of an opposition leader further clouds near-term policy predictability, though the government's stated macroeconomic agenda remains unchanged,” the rating agency noted on the political side.
The move takes into account the effects of the corona crisis and follows a similar step taken by Fitch last April.
The rating agency affirmed the country’s long- and short-term foreign and local currency sovereign credit ratings at BB, as well as the negative outlook.
Georgia's governance and ease of doing business indicators outperformed the median percentile of its BB peers, the rating agency argued, while the country's commitment to the current IMF EFF programme helped maintain a positive structural reform agenda.
Fitch expected Georgia to agree a successor deal with the Fund when the EFF expires in April.
The main downside risks to Fitch's baseline related to uncertainties attached to the evolution of the pandemic and the efficacy of the vaccination rollout, the rating agency said.
Georgia's general government debt is estimated by Fitch to have increased by 20pp in 2020 to 60.4% of GDP, slightly above the median debt ratio of 'BB' peers (59.9% of GDP). Fitch forecast debt to stay around this level in 2021, before declining to 56.5% in 2022.
The economic recovery and commitment by the government to return to its fiscal rule by reaching a deficit below 3.0% of GDP by 2024, will support medium-term debt reduction.
Fitch forecast Georgia's CAD will widen to 12.5% of GDP in 2021, before narrowing to 7.9% in 2022. A domestic-driven recovery and a weak outlook for tourism will mean a higher pace of growth in imports than exports, it added.
50 GEORGIA Country Report October 2021 www.intellinews.com