Moody’s: Volatile global markets contribute to Georgia’s currency devaluation

One of the world’s largest credit rating agencies has released its theory about why Georgia’s national currency is continuing to drop in value.

Moody’s, one of the big three global credit ratings agencies, stressed the devaluation of the Lari was due to the volatility of global financial markets, not because of an issue in the country’s economy.

The agency noted instability in global financial markets had affected the outlook of currencies in several emerging markets, including Georgia, as did a slow-down in the economy of Georgia’s neighbour Russia.

As of August 26, with the GEL pitted at 2.4161 against 1 USD, the Georgian Lari reached its lowest level since 1999.

Today 1 USD equalled 2.37 GEL.

"We view the depreciation of the Lari in a global context. Volatility in global financial markets has affected the outlook for the currencies in several emerging market countries, including Georgia,” Ernest Sergenti, Moody’s Assistant Vice President and lead analyst on Georgia, told The FINANCIAL.

"In addition to the depreciation of the Lari by 5.8 percent between 27 July and 24 August, the Brazilian Real, Indonesian Rupiah, South African Rand and Turkish Lira have all depreciated between 4.3 percent and 6.2 percent,” he stressed.

Other currencies have depreciated by much more over the same period: the Belarusian Rouble by 10.8 percent, the Russian Rouble by 18.8 percent and the Kazakhstani Tenge by over 20 percent,” he said.

"In addition, the slowdown in economic growth in Russia and other neighbouring countries has led to a decline in inward remittances to Georgia and a widening of Georgia’s current account deficit, which also tends to produce a depreciation of the exchange rate,” Sergenti said.

Despite an increase in tourist numbers and the fact the country hosted several major sporting and business forums recently, which saw an inflow of US dollars into the country, Georgia’s national currency continued to devaluate.

The National Bank of Georgia (NBG) said the external shock effect on the Lari exchange rate was now over. This encouraged experts to assume the Lari would strengthen this summer however the Lari has continued to fall against the greenback. Now, some experts believed the Lari will depreciate further in autumn when tourist numbers drop.

Earlier Prime Minister Irakli Garibashvili claimed "people created false expectations” and said the crisis period had already passed.

NBG Vice President Archil Mestvirishvili confirmed the prediction of Government officials, who claimed the Lari exchange rate would stabilise.

"We do not expect further fluctuation of the Lari,” he said.

"The current geopolitical challenges in the region of course affect Georgia as well. Although the external shock effect on the Lari exchange rate is now over. Now one of the main factors of negative pressure on the exchange rate is false expectations about the Lari’s further devaluation in autumn. However the market ‘behavior’ will have the opposite effect, which will support the strengthening of the exchange rate,” said Mestvirishvili.