Fitch Ratings forecasts 2% economic growth in Georgia in 2015

Fitch Ratings expects some large-scale infrastructure projects could boost investment over the coming years in Georgia. Photo by N. Alavidze /, 20 Apr 2015 - 14:54, Tbilisi,Georgia

Global ratings agency Fitch Ratings has revised its outlook for Georgia and is now predicting the country will experience 2 percent economic growth in 2015.

This revised prediction was a downgrade on its 2014 economic forecast of 4.8 percent.

Furthermore, Fitch also reviewed its outlook on Georgia's long-term foreign and local currency Issuer Default Ratings (IDR) from ‘Positive’ to ‘Stable’. On this note, it affirmed the country’s IDRs at 'BB-'.

The issue ratings on Georgia's senior unsecured foreign and local currency bonds were also affirmed at 'BB-'. The Country Ceiling was affirmed at 'BB' and the short-term foreign currency IDR was affirmed as 'B'.

Fitch noted there were several reasons for the revision of Georgia’s outlook from ‘Positive’ to ‘Stable’, one of which was the impact of the devaluation of the currency on Georgian trade and remittances.

Fitch said Georgia had experienced "multiple external shocks” following the drop in oil prices and sanctions-induced downturn in Russia, which had spilled over to surrounding CIS (Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan and Uzbekistan) economies. This had triggered a wave of trading partner currency devaluations.

These developments have had a highly adverse impact on Georgian trade and remittances: exports have fallen sharply, while remittances were down about 25 percent, noted Fitch.

Currently, Georgia’s main weakness was its external environment. Fitch said: "The Georgian Lari has depreciated by about 30 percent from its 2011-2013 levels compared to the US dollar, although the real effective exchange rate has remained relatively stable. The floating of the Lari provided a shock absorber and mitigates the decline in foreign-exchange reserves.”

Nevertheless, the central bank has intervened on six occasions since November 2014, lowering reserves by $240 million USD to $2.45 billion USD in March - their lowest level since January 2011. We expect reserves to fall below 2.5 months of import coverage in 2015 and 2016, well below the 'BB' median,” said Fitch.

With CIS countries accounting for more than half of total exports, Fitch expected Georgia’s exports to fall by 20 percent in 2015.

"Despite a decline in imports, we expect the current account deficit (CAD) to widen to about 14 percent of GDP in 2015 from 9 percent in 2014. The depreciation will also push net external debt up from 58 percent of GDP in 2014 to nearly 80 percent in 2015, far above the 'BB' rating median of 15 percent,” noted Fitch.

Fitch also expected economic growth to reach two percent in 2015, down from 4.8 percent in 2014. Fitch said the reason of the country’s economic slowdown was because of "spillovers from the regional economic downturn”.

Lower exports to Russia and other CIS countries, weaker business and consumer sentiment will weigh on the economy. Downside risks remain and will be linked to further developments in the oil price, Russia and other trading partners,” said Fitch.

The Lari depreciation will cause a decline in Georgia's GDP per capita in US dollar terms by 20 percent, leaving it more thn 30 percent below the 'BB' median. GDP will be $2,923 USD in 2015 while it was $3,623 USD in 2014.

Fitch expected Foreign Direct Investment flows "to remain robust” as Georgia could boost its attractiveness as an investment location with its recent signing of the Association Agreement (AA) with the European Union (EU).

Some large-scale infrastructure projects could boost investment over the coming years, notably in the railway, road, energy and sea transport sectors,” said Fitch.