IMF: Georgia’s economy stable but faces ongoing risks

Georgia has weathered several shocks but the country still faces a number of challenges, says a report published by the International Monetary Fund (IMF).

An IMF mission came to Georgia in June 2014 to learn about the stability of the country’s financial system, but presented their final results to the National Bank of Georgia (NBG) three days ago in its latest paper.

The research was revealed in the Financial System Stability Assessment for Georgia, which has been published five times earlier, in December 2014 and January 2015.

The latest paper, presented to NBG president Giorgi Kadagidze on Friday, stated Georgia’s economy had withstood several nearby incidences which could have had serious effects, such as the Russian conflict, the global financial crisis and domestic political uncertainty.

"Significant steps have been taken to strengthen banking regulations and supervision, which exhibit a very high degree of compliance with international standards. NBG has also introduced an advanced risk-based supervisory regime while maintaining a conservative approach aimed at detecting vulnerabilities at an early stage, and allocating supervisory resources in the most efficient and effective manner,” said the paper.

IMF said the Georgian banking sector was stable and had continued to perform well, but there were still a number of key risks and vulnerabilities that needed to be closely monitored. Of the concerns, particular challenges were credit and funding risks related to the dollarisation, concentration in the banking sector and reliance on nonresident deposits, noted the paper.

"There are two major dollarisation-related problems: Firstly, most of the borrowers in US dollars (USD) are unhedged, as their income and expenditures are in the national currency (this is especially evident in case of households),” read the paper.

"Secondly, NBG has a limited ability to provide liquidity support in USD and other foreign currencies. However, it should be noted that the NBG is implementing a set of macro-prudential measures aimed at making FX lending more expensive for banks,” said the paper.

NBG president Kadagidze said the IMF paper was very important for Georgia.

"This is a message for investors and international financial organisations that there is a developed, sustainable and reliable financial sector in Georgia.

"This paper once again proves the progress and success of the systematic changes that the National Bank of Georgia and the whole financial sector have performed in recent years,” Kadagidze said.