Fitch affirms Georgia at BB credit rating with “stable” financial outlook

Fitch Ratings, a global financial ratings firm, has affirmed Georgia’s Long-Term Foreign-Currency Issuer Default Rating status at a BB level, with a “stable” outlook for the country’s financial developments.

The international credit rating agency said Georgia’s rating was underpinned by “a credible and effective policy framework and stronger governance indicators” relative to peers with the BB rating, as placed on a spectrum from AAA to D rating assessments.

In an update on July 29, Fitch underscored the Russian invasion of Ukraine had so far been a “large positive economic shock” with up to 90,000 Russians, Belarusians and Ukrainians entering Georgia, resulting in a surge of remittances by 65 percent year-on-year in the first half of the year.

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The global credit rating agency also noted that the increase in remittances would facilitate the decrease in the current account deficit to around 5.1 percent of the gross domestic product in Georgia in 2022, citing it would remain “well above the current BB median of 3.5 percent.” 

The report also said foreign-exchange reserve coverage would average 4.5 months of current account payments in 2021-2024, noting a $280 million Stand-By Arrangement of the International Monetary Fund for Georgia was “positive for external liquidity risks,” adding although authorities were currently treating the deal as a “precautionary facility.” 

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Calling Georgia’s pre-pandemic record of fiscal discipline “strong”, the financial firm highlighted the country’s progress in revenue management and budgetary transparency of state-owned enterprises.

Fitch Ratings said the fiscal policy was “gradually tightening” amid “very strong” revenue growth and currency strength, and authorities intend to return to adherence to fiscal rules requiring deficits below 3 percent of GDP by 2023. Photo: Nino Alavidze/Agenda.ge.

There are some efforts at export-market diversification, with China emerging as the largest export market in January-May 2022,” the global financial agency added.

Fitch forecasted inflation in Georgia would average 11.5 percent year-on-year in 2022, adding housing and food prices would remain high in the country, before declining to 6.2 percent in 2023 and 4.2 percent in 2024.

Real GDP growth in Georgia is projected at 10.9 percent in 2022, the report said, adding “positive spillover effects on personal consumption, as well as stable export demand and continuing tourism recovery will help keep growth at 5.3 percent in 2023 and 4.7 percent in 2024.”

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As for the geopolitical situation, the report pointed out Georgia was “highly exposed” to geopolitical risks, mentioning ​​the unresolved conflicts involving Russia in Georgia’s occupied Abkhazia and South Ossetia (Tskhinvali region).

Authorities are implementing international sanctions on Russia, overseeing the change of ownership of one major Russian-owned bank and taking control of a large mineral water producer,” Fitch Ratings said.

Additionally, the report 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,” Fitch said.