Moody’s Names The Main Challenges For The Economy Of Georgia

Moody’s Names The Main Challenges For The Economy Of Georgia

International rating company Moody’s has raised the sovereign credit rating of Georgia from Ba3 to Ba2 and assessed the situation again as stable. The rating company last raised the sovereign credit rating of the country (Ba3) in October 2010.

The rating company states that the Georgian economy and institutions have shown sustainability alongside with the regional economic shocks that started in 2014. Besides, Moddy’s expects that the economic reforms, supported by IMF, will improve the credit weaknesses of the country.

As limiting factors, Moody’s name the banking sector and external risks.

The rating company states that over the period between 2014 and 2016, when the region was experiencing significant economic, financial and monetary shocks, the rate of growth of limited companies in Georgia remained within 3,4% – while many of the neighboring countries of Georgia were in recession or very close to it.

“During those years, economic sustainability of Georgia was influenced by effective macroeconomic policy and strong banking supervision, which allowed the banks to keep on financing the economy. In future, we expect that the economy of Georgia will continue growing”, – stated representative of Moody’s and added that during this process it is necessary to diversify the economy, including by means of the Free Trade Agreement.

The rating company believes that DCFTA will on the one hand allow Georgia to increase competitiveness and on the other hand, improve the quality of products, educational system and Labor Code. Apart from that, in its assessment Moody’s emphasizes the positive sides of free trade with China and Turkey.

“These actions will help the country to bring FDI GDP closer to 10%, while increasing export and economic growth in the mid-term prospective”, – state Moody’s representatives.

Despite of the above, the agency notes that the main credit weaknesses – banking sector and external risk – will still remain. Moody’s positively assesses inception of new IMF program in Georgia and notes that it will facilitate implementation of structural reforms and inclusive growth.

Moody’s states that fiscal and pension reforms in Georgia will facilitate creation of savings and will at the same time reduce the need for external financing in the long-run.

Yet, over the next few years, the main limiting factor will still be the current account deficit.

The risk of banking sector will remain as the credit weakness, which is being affected by high degree of dollarization.

“Despite the progress achieved by larization, further improvement will take certain time”, – states Moody’s. the agency is expecting stability in geo-political situation in Georgia as well as in the region, which will facilitate economic and fiscal reforms.

Uncertainty in fields like The Law on Insolvency, land registration and development of vocational education system, which would ensure providing qualified workforce at the market, have been named as factors limiting the rating.

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