S&P affirms Georgia's BB/B rating with stable outlook
TBILISI. Aug 12 (Interfax) - The S&P Global Ratings international rating agency has affirmed the Georgian government's long-term and short-term sovereign credit ratings at BB/B and maintained a stable outlook, the agency said in a statement.
"The stable outlook balances Georgia's strong economic and fiscal performance against growing policy uncertainty, which we expect will persist over the next 12 months," the statement said.
Rating pressure could emerge in this period from a significant escalation in domestic political tensions, which could undermine investor confidence and hinder Georgia's growth prospects, it said. Additionally, rating stress could intensify due to reverse migration and capital outflows, leading to a significant deterioration in public finances and the balance of payments.
At the same time, S&P noted that it could consider a positive rating action within the next 12 months, if Georgia's economic and fiscal performance exceeds its forecasts and domestic political uncertainty diminishes.
In general, Georgia's ratings are constrained by the country's relatively low income levels and weak external position, exacerbated by its dependence on imports and significant external liabilities. Additionally, moderate dollarization of Georgia's financial system hampers the monetary policy transmission channel. S&P also noted a weakening risk of Georgia's relatively strong political basis.
At the same time, the agency highlighted Georgia's strong economic performance and raised its forecast of the growth of the country's GDP this year in light of it.
"Georgia's economy has outperformed our expectations, with first-quarter 2024 growth reaching 8.4% year on year. The primary drivers of growth were public and private consumption, bolstered by robust tourism inflows, a tightening labor market, and substantial real wage growth. High-frequency growth indicators suggest that this momentum continued through June, leading us to revise our 2024 growth forecast to 6.6%, up from 5.0% previously, with consumption expected to remain the primary growth driver," S&P said.
According to it, beyond 2024, Georgia's economic growth outlook remains strong, and the agency forecast that Georgia's real GDP would expand by an annual average of 5% through 2027. At that, the possible outflow of Russian and Belarusian migrants and an escalation of regional conflicts and their potential consequences for the global and European economy remain the main risks for the Georgian economy.
The agency noted Georgia's trend for the growth of inflation and expects it at 2.6% this year. "We anticipate that the NBG [National Bank of Georgia] will maintain a cautious monetary policy stance until domestic political pressures subside, among other factors such as geopolitical uncertainty," it said.
The agency forecast that the current account deficit would increase to 5.5% of GDP in 2024, up from 4.4% in 2023 because of a slight worsening of the trade balance due to weaker external demand. Until 2027, the forecast is that the current account deficit would average approximately 5.3% of GDP.
The agency pointed out that the National Bank of Georgia has seen its reserves dip to their lowest levels since February 2023, reaching 4.6 billion euros in June, down from 5.1 billion euros during the same period last year. This decline is attributed to the repayment of the government's foreign debt and a reduction in foreign currency reserve requirements.
Georgia's banking system remains stable, banks have strong capitalization levels and maintain sufficient liquidity buffers, and the country's banking regulation is effective and "largely consistent with international standards, marked by solid corporate governance and commendable transparency," S&P said.
The agency's experts noted the adoption of the Law on Transparency of Foreign Influence by the Georgian parliament this May as one of the key political risks. "Recent policy initiatives appear to backtrack on some past reforms, undermine checks and balances between institutions, and weaken policy predictability," S&P said in this context.
