Moody’s Assess Georgia’s Economy

“Georgia is seeing growing access to a diverse set of markets through various trade agreements, which will allow foreign direct investment inflows”, - states the rating agency Moody’s, expecting FDI increase up to 10%. In its updated assessment, the agency states that that the government of Georgia's credit profile reflects the country's high potential growth, strong and improving institutions, and a moderate debt burden, but also low income levels, a small economy, external vulnerability from the economy's reliance on foreign-currency denominated funding, and latent geopolitical risks.

Last year, the rating company Moody's upgraded Georgia’s sovereign credit rating from Ba3 to Ba2 and assessed the situation as ‘stable’.  

Moody's conclusions are contained in its credit analysis on Georgia, according to which analysis Georgia’s assessments in four categories are:

Economic strength – low (+);

Institutional strength – high (-);

Fiscal strength – moderate; and

Susceptibility to event risk – moderate.

Moody's report says this framework is anchored by the country's close engagement with the European Union (Aaa stable) and International Monetary Fund.

As to the risks, limiting the ratings, the agency notes that credit challenges stem from low domestic savings that imply that a large share of investment is financed by external debt, making the economy vulnerable to a tightening in external financing conditions.

Last week, Georgia’s rating was upgraded by another rating agency, namely Fitch, which upgraded Georgia’s forecast from ‘stable’ to ‘positive’. The agency forecasts 4.6% economic growth in the country, which is 0.3% higher than the previous forecast. among the factors limiting the rating the agency names current account deficit and external debt to GDP volume. According to Fitch, the reasons are low domestic savings and significant dependence upon import.

The agency states that the share of dollarization in the Georgian economy is too high, and the economy itself is vulnerable to external factors, including currency depreciation of neighboring countries. Fitch notes that in 2017, increase of export and improvement of economic situation in the countries with large Georgian diaspora positively contributed to economic growth, which in its turn facilitated increase of money transfers to Georgia. However, in the current year, the agency is expecting changing of the positive effect of export to negative, the reason for which, according to the agency, is increased import alongside with planned major infrastructural projects.

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