Page 27 - GEORptMar19

While the country’s chronic current account deficit is safely financed by wage remittances and the central bank’s reserves are actually increasing, vulnerabilities make the exchange rate of the lari particularly sensitive to political developments—the outcome of the presidential election which has gone to a runoff is highly unpredictable. Slower than expected growth in Q3—at 4.0% y/y from 5.5% y/y in Q2—has added additional downward pressure the currency.
“The floating exchange rate regime, which is currently employed in Georgia, is characterised by short-term fluctuations on the FX market”, the monetary authority said.
Based on the information available, recent exchange rate fluctuations should be seen as unrelated to economic fundamentals, the central bank underlined. The current exchange rate dynamic is negatively affected by the environment surrounding the presidential election, it added. “The National Bank strongly encourages public figures and experts to abstain from ungrounded statements and forecasts about the exchange rate dynamics to avoid the emergence of misleading expectations”, added.
However, what the National Bank of Georgia claims to be “volatility” seems to be moderate depreciation, and the deep current account deficit is a significant fundamental behind this.
The current account gap is expected to grow to 10.5% of GDP this year from 8.9% of GDP in 2017 and to remain in the double digits at 10.2% of GDP in 2019, according to the International Monetary Fund’s October 9 World Economic Outlook edition. Earlier, in April, the Fund expected the country’s external deficit to narrow to 9.5% of GDP.
27 GEORGIA Country Report March 2019 www.intellinews.com