Georgia’s Sovereign Credit Rating Raised to BB with Stable Outlook by Standard & Poor's

International rating company Standard&Poor’s (S&P) improved its long-term foreign and local currency sovereign credit ratings on the Government of Georgia to 'BB' from ‘BB-’. It also affirmed the short-term ratings at 'B'. The outlook is stable.

The organization said that Georgia has maintained comparatively high growth rates over the past few years, even in a challenging external environment.

The outlook reads that the Georgian economy expanded by nearly 4% on average over 2015-2018, weathering periods of anemic external demand as trading partners were hit by falling oil prices, regional currencies were devalued, and some fell into recession.

“Georgia's economy grew by nearly 5% in real terms in the first half of the year, incorporating a slight slowdown in the second half, lower tourism revenues and muted consumption, following the Lari's depreciation. We project real GDP growth of 4.5% in 2019. We have revised up this estimate from our previous 4.0% for the full year,” the outlook reads.

S&P believes that Georgia's economy will continue to grow at a comparatively high 4% annually over 2019-2022, and expects it to grow faster than other countries in the region.

“Despite the strong growth outlook, we expect Georgia's per capita income will remain modest at below $5,000 through 2022,” the organization said, adding Georgia's institutional settings remain favorable in the context of the region, with several established precedents regarding power transfer, and a degree of checks and balances between various government bodies.

The outlook reads that S&P sees some downside risks from the ruling Georgian Dream (GD) party's majority in parliament should it use this majority to solidify its incumbent position.

“The domestic political landscape in Georgia has also seen heightened volatility recently with several public protests in 2019 and 2018. We consider that political uncertainty will likely stay elevated in the run-up to the parliamentary elections in 2020, but we do not expect any detrimental shifts to economic policy-making and anticipate a continued broad focus on reforms and attracting foreign investment,” the assessment reads.

Standard&Poor’s report noted risks from regional geopolitical developments, highlighting that the status of breakaway South Ossetia and Abkhazia will likely remain a source of dispute between Georgia and Russia.

“Russia has continued to build stronger ties with the two territories, as highlighted by the recent partial integration of the South Ossetian military into the Russian army, the establishment of a customs post in Abkhazia, and regular visits to the territories by senior Russian government officials. However, we don't expect a material escalation,” they added.

Natia Turnava, Minister of Economy and Sustainable Development, says the improvement of Georgia’s rating is the result of the successful reforms of the government, which sees Georgia's economy developing rapidly and steadily across the region.

"If we look at the dynamics of the ratings in the region, we will see that there is no such significant improvement from other countries as Georgia received," Turnava said.

The Minister noted that Georgia's recognition and ratings were improved not only by Standard & Poor’s, but also by two other leading rating agencies, among them Moody's and Fitch, which significantly improved the country's rating recently.

“What this rating gives us is increased recognition and confidence from our investors. Both our local investors and international ones are positive and will invest more boldly in Georgia," the Minister said.

Georgia’s Finance Minister, Ivane Matchavariani, also commented on the issue, saying that Georgia has been particularly resilient to external and regional shocks over the last two years.

“Due to the crisis in the region in recent years, the ratings tend to decline and Georgia is the only country that has been able to move up in credit ratings during this difficult period,” he noted.

The Minister added that in the period 2019-2022, Georgia will have the highest economic growth compared to its regional neighbors.

"The agency welcomes the reforms we are implementing in our country... It indicates that despite the recent developments related to tourism problems this summer, Georgia's economy is quite stable," Matchavariani stated.

By Tea Mariamidze

Image source: Budapest business journal