Page 33 - bne IntelliNews Georgia country report November 2017

S&P affirms Georgia at BB-, outlook stable
GDP, Georgia's external debt is four times larger than those of similarly rated countries. Furthermore, the country's foreign exchange reserves are relatively low, covering only three months of imports.
The small and trade-dependent country has proven more resilient to the economic downturn in Russia and Central Asia in 2014-2016, posting average GDP growth of 4% in the last five years and managing to remain a competitive destination for foreign investment.
Furthermore, macroeconomic conditions are expected to improve in the short term, according to the report. The current account deficit is expected to fall to 11.3% of GDP in 2017 and 10.2% in 2019. After peaking at 7.1% y/y in June, consumer price inflation is expected to average 5.6% by the year-end and 3.5% in 2018 and the government budget deficit to narrow from 4.1% of GDP in 2016 to 3.9% in 2017 and 3.5% in 2018. And, after disappointing economic growth levels of 2.9% in 2015 and 2.2% in 2016, GDP growth is expected to pick up to 4.5% in 2017 (it stood at 4.9% in the first half-year) and to remain at that level in the next two years.
Standard& Poor's (S&P) anticipates that Georgian Dream-Democratic Georgia's (GDDG) victory in the October parliamentary election will not result in any significant policy changes, the ratings agency wrote in an analysis on November 11, in which it also reaffirmed the country's rating at 'BB-/B' with a stable outlook.
The S&P report came out the same week as a report by Moody's, which also reaffirmed the country's rating and said it was not expecting any major policy changes from a second GDDG administration. S&P elaborated by saying that the government was expected to maintain public finances in strong shape and to focus on economic growth, but that the landslide victory, which ensured a constitutional majority for GDDG of 115 seats out of 150 in parliament, could erode democratic checks and balances. The latter, however, is not S&P's baseline scenario, as Georgia has some of the strongest institutions in the region, the agency added.
S&P forecasts economic growth to the tune of 2.8% in 2016, which will gradually increase over the coming years up to 5% in 2019. The factors supporting this optimistic forecast are the robust investment anticipated to come on line in the next two years, underpinned by a number of public and private projects in energy and tourism; strong consumption performance supported by moderate inflation levels; and a strengthening export performance starting in 2017 on the back of government efforts to diversify exports and an economic recovery in Russia and Azerbaijan, important trade partners of Georgia's.
The agency added that government debt is expected to inflate to 3.5% of GDP in 2017-2019, in part due to the depreciation of the Georgian lari and the high level of dollarisation of Georgia's external debt. External government debt is expected to peak at 43% of GDP in 2018. Georgia's weak external position remains one of the main constraints on its rating, as the current account deficit has continued to grow, reaching a four-year high of 12% of GDP in 2015.
33 GEORGIA Country Report November 2017 www.intellinews.com