Page 30 - GEORptFeb20

Georgia’s 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.
The country's high current account deficit, which reached 13% of GDP at end-2016, is one of the important sources of external debt.
7.0​ FX
Georgia - Foreign exchange rate
2014
2015
2016
2017
2018
Mar’19
Jun’19
Sep’19
Dec’19
Currency (units per EUR) (average)
2.346
2.520
2.617
2.832
3.054
3.037
3.132
3.266
3.227
Currency (units per USD) (average)
1.766
2.270
2.367
2.509
2.675
2.684
2.777
2.965
2.905
Georgia’s central bank defends currency with forex interventions
The National Bank of Georgia (NBG) on November 26 moved against excessive local currency weakening by selling $20mn of foreign exchange reserves.
The Georgian lari (GEL) hit a new low versus the US dollar last week. Both the NBG and the government have constantly invoked strong fundamentals in defending the currency. The central bank has now sold forex reserves three times this year. The previous two interventions were carried out in August and September. The dollar sales totalled $62.8mn.
Separately, the NBG reduced the minimum required reserves for foreign currency liabilities, thus releasing some $750mn to banks. To fight inflation, the regulator hiked its key policy rate to 8.5%.
The dollar traded at 2.9880 versus the GEL in the early hours of November 26. A failure to intervene might have resulted in the breaching of the 3.00 threshold, a line that is apparently defended by Georgia’s monetary authority. The $20mn was sold at an average rate of 2.9699 GEL. After the intervention, the GEL strengthened to 2.971.
The Q3 balance of payments data are yet to be released, but the Q2 figures were encouraging: the current account deficit narrowed by 63% y/y to $127mn and the current account gap for the rolling 12-month period ending in June contracted by 44% y/y to $777mn. The volume of direct investments also decreased, as major transport projects were completed—but FDI still remained larger than the CA gap at $129mn in Q2 (down 56% y/y) and $786mn (down 48% y/y) in the rolling 12 months ending June. The figures are not much larger than the CA deficit, but a coverage ratio of over 100% is plainly robust.
The Asian Development Bank (ADB) has revised its 2019 forecast for Georgia’s current account balance as a share of GDP to -7.3% (previously -7.9%). For 2020, the current account balance as a percentage of GDP is anticipated at -7.1% (previously -7.8%).
The government said that there was no fundamental basis for the GEL weakening. On the contrary, the currency is undervalued by 7% to 8%, deputy finance minister Niko Gagua stated.
30​ GEORGIA Country Report​ February 2020 ​ ​www.intellinews.com