Page 39 - GEORptFeb20

improved economic resilience
Fitch affirms Georgia’s BB sovereign rating
The rating agency said it expected Georgia’s economy to keep outperforming its peers in the region, but stressed that the floating exchange rate regime was important.
“Georgia's economy will continue to grow at a comparatively high 4% annually over 2019-2022. We expect it to grow faster than other countries in the region. Georgia's long-established floating exchange rate regime, with intermittent intervention from the central bank, remains particularly important,” the rating agency’s press release read.
Georgian finance minister Ivan Machavariani welcomed the upgrade. At a special news briefing on October 12 he said that the country needed just a couple of more upgrades to reach the rating which would "substantially change" the Georgian economy and its development. Indeed the action keeps Georgia’s sovereign long-term debt in the non-investment grade, speculative category.A two-notch upgrade is needed to bring it into the investment grade category.
S&P said that it could further improve the country’s rating if Georgia's growth rates translated into higher income levels while its exports profile diversified further, both in terms of product and geography.
The rating action comes in response to Georgia maintaining comparatively high growth rates over the past few years (4% on average over 2015-2018), even in a challenging external environment: the country’s trading partners were hit by falling oil prices, regional currencies were devalued, and some fell into recession.
In regard to the most important economic development in Georgia—a currency weakening driven by sentiment rather than fundamentals—S&P said it recommended that the central bank build up foreign currency reserves.
“Continued growth of the central bank’s foreign currency reserves should help mitigate any immediate balance-of-payments risks,” its report read. The net foreign currency reserves have been increasing over the past year and S&P analysts said that they expected this to continue over the medium term.
The central bank’s reserves have increased by $250mn on average every year since 2016. Part of this momentum stems from the IMF programme, in place since 2017, and higher reserve requirements for commercial banks against foreign exchange liabilities. However, the increase is also a result of central bank purchases.
International rating agency Fitch on August 16​ ​affirmed​ ​Georgia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at BB,with a Stable Outlook. ​This is the best non-investment grade, indicating that the country features elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.
Georgia’s robust growth, above the BB average, is offset by the external vulnerabilities magnified by the ban on tourism set by Russia, the rating agency reasoned.
Fitch forecasts Georgia’s economic growth to decelerate to 4.3% in 2019, from 4.7% in 2018, as credit growth slows down and the Russian flight ban hinders
39​ GEORGIA Country Report​ February 2020 ​ ​www.intellinews.com