Fitch affirms Georgia at ‘BB’ with negative outlook

Global Fitch has confirmed Georgia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ with a negative outlook. 

Fitch notes in its recent report that Georgia's ratings are supported “by strong structural indicators” such as governance and business environment relative to 'BB' category peers.

A consistent and credible policy framework has underpinned Georgia's resilience to previous shocks. These credit strengths are balanced by a high share of foreign-currency denominated government debt, low external liquidity and higher external financing requirements relative to peers”, it says.

It also says that the negative outlook “reflects the significant impact” of the coronavirus pandemic on Georgia's economy.

The pandemic is causing a sharp contraction of Georgia's small open economy with a large tourism sector, a deterioration in fiscal accounts, including markedly higher public debt, and increasing risks stemming from Georgia's higher external debt and wider structural current account deficit relative to the median of its 'BB' category peers”, the report reads. 

Fitch forecasts Georgia's economy to contract by 4.8% in 2020, with a rebound in growth of 4.5% in 2021. 

The continued closure of Georgia's land and air borders will have a significant impact on its tourism sector, which directly accounts for 11.6% of GDP (World Travel Tourism Council, 2019). A gradual recovery in tourism is anticipated in 2021, but it is unlikely to recover to 2019 levels by 2022”, Fitch further says.

It notes as well that the tourism sector “remains vulnerable” to regional economic developments, with Russia, Turkey, Azerbaijan and Armenia “significant sources of tourism receipts”.

Fitch estimates that the government's Anti-Crisis Economic Plan to the coronavirus pandemic equals GEL 3.9 billion (7.8% of GDP) as of August 10. It now forecasts Georgia's fiscal deficit to reach 9.2% of GDP in 2020 (compared with a forecast of 8.6% in April). 

It says “fading of some one-off measures and economic recovery” should help narrow the deficit to 4.8% in 2021.