BAKU, Azerbaijan, October 21
By Tamilla Mammadova – Trend:
Georgia’s ability to comfortably meet its 2020 funding needs highlights the strong support it enjoys from official creditors, Trend reports via the Fitch Ratings.
As reported, this has reduced refinancing risk and helped preserve external buffers, but high net external debt remains a sovereign rating weakness.
"Georgia has enacted a large fiscal stimulus program worth 7.8 percent of GDP in response to the coronavirus, but secured official financing over its 2020 needs, allowing an increase in government deposits projected by Fitch at 5.6 percent of GDP. These deposits provide fiscal space for further stimulus to support growth and borrowing from the official sector on concessional terms at long maturities mitigates immediate refinancing risks from rising public debt, as well as easing a wider balance of payment pressures by helping preserve international reserves," the report said.
According to Fitch, the funds could also be used to repay the sovereign’s sole outstanding Eurobond, which matures in April 2021. Repaying the $500 million Eurobond from government deposits rather than refinancing it would reduce the 2021 debt ratio by 2.8 pp of GDP after an 18.7 pp jump this year. The recent draft 2021 budget indicates some appetite for fiscal consolidation. It targets a deficit of 5.1 percent of GDP in 2021 and would reduce the deficit to 3 percent of GDP in 2023, following the fiscal rule.
The report noted, that the financing would come through external concessional borrowing and the growing local market.
"Fiscal plans for 2021 appear consistent with Georgia’s record of prudent fiscal settings and also with its engagement with official creditors, which can act as a policy anchor. Prudent fiscal policy is complemented by the record of consistent and credible policy-making of the National Bank of Georgia, which we expect to support price stability and economic recovery," Fitch said.
According to Fitch, Georgia’s higher external debt, lower international liquidity ratio, and wider structural current account deficit than rating peers are sovereign credit weaknesses, and the coronavirus pandemic has increased the associated risks to Georgia’s small, open economy.
The company noted net travel receipts make up the majority of Georgia’s services surplus, and lower tourism receipts will contribute to a widening of the current account deficit to 11.1 percent of GDP this year from 5.4 percent in 2019.
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