Page 48 - GEORptSep22

Moody’s cuts Georgia’s credit rating outlook amid fears of Ukraine war spillover
The agency also stated that the increase in remittances would facilitate the decrease in the current account deficit to around 5.1% of Georgia's gross domestic product (GDP) in 2022. "It would remain well above the current 'BB' median of 3.5%," read the reports.
The report also said foreign-exchange reserve coverage would average 4.5 months of current account payments in 2021-2024. It added that the recent $280mn Stand-By Arrangement of the International Monetary Fund (IMF) for Georgia was "positive for external liquidity risks," even though authorities were currently treating the deal as a "precautionary facility".
Fitch also noted the efforts aimed at export diversification, with China emerging as the largest export market in the year's first five months.
Fitch forecasted inflation in Georgia would average 11.5% y/y in 2022, adding housing and food prices would remain high in the country but would decline next year by about 6%. The report projected real GDP growth in Georgia at 10.9% in 2022.
As for the geopolitical situation, the report pointed out Georgia was "highly exposed" to geopolitical risks, referencing Russia-occupied Abkhazia and South Ossetia.
Fitch also pointed out "political risks" in the country associated with upcoming parliamentary elections in 2024, calling the relations with Russia and the European Union "divisive issues".
"We see a risk that politics could weigh on progress in structural reform and the business environment over time," reads the report.
Moody’s cut the outlook on Georgia’s sovereign 'BA2' credit rating to negative from stable on April 28, warning of risks linked to Russia’s invasion of Ukraine and Tbilisi’s own history of clashes with Moscow.
The rating agency said the decision to change Georgia’s outlook – which effectively puts it on a downgrade warning – reflected the “heightened geopolitical event risks” given Georgia’s “frozen” conflicts with Russia over South Ossetia and Abkhazia.
“While not Moody’s base case, a crystallisation of these political risks, including a possible expansion of the military conflict to Georgia and a consequent significant and sustained impact on Georgia’s economic and fiscal prospects, would weigh on its credit outlook,” Moody’s said.
Moscow recognised the breakaway regions of South Ossetia and Abkhazia as independent after fighting a war with Georgia in 2008. It stationed thousands of troops in both regions and has provided them with extensive financial support. The presence of Russian troops “increases the risk of the military conflict in Ukraine spilling over into Georgia”, Moody’s said.
48 GEORGIA Country Report September 2022 www.intellinews.com