Moody‘s Investors Service says that the credit profile of Georgia (Ba2 stable) reflects its high average growth rates, strong and improving institutions, and a moderate debt burden. These factors are weighed against its low income levels, small economy, and external vulnerability due to the economy’s reliance on foreign capital inflows and latent geopolitical risks. Moody’s notes that Georgia shares in its assessment some characteristics with Armenia (B1 positive), Albania (B1 stable), Azerbaijan (Ba2 stable), Croatia (Ba2 stable), Fiji (Ba3 stable) and Serbia (Ba3 stable).
Moody’s conclusions are contained in its annual credit analysis, “Government of Georgia – Ba2 Stable”. The analysis elaborates on Georgia’s credit profile in terms of economic strength, Low (+); institutional strength, High (-); fiscal strength, Moderate; and susceptibility to event risk, Moderate. These are the four main analytic factors in Moody’s Sovereign Bond Rating methodology.
High growth and strong developing institutions are offset by low incomes which constrain households’ capacity to absorb economic shocks. Furthermore, Georgia’s persistent wealth gap vis-à-vis Russia (Baa3 stable), Turkey (Ba3 negative) and the EU has contributed to substantial migrant outflows historically and in recent years, undermining the economy’s growth potential.
Nevertheless, Georgia has growing access to a diverse set of markets through various trade agreements, which will allow FDI inflows to remain close to 10% of GDP and will support trade and economic growth in the medium term. By contrast, credit challenges stem from low domestic savings that imply that a large share of investment is financed by external debt, making the economy and sovereign vulnerable to a tightening in external financing conditions. The economy’s small scale and preponderance of very small companies are also constraints on Georgia’s growth potential.