Moody’s issued their in-depth annual credit analysis report on the Government of Georgia, giving them a rating of “Ba2 stable”, on March 20th.
According to the report, Georgia’s “Ba2 stable” credit profile reflects “high average growth rates, strong and improving institutions, and a moderate debt burden, weighed against low income levels, a small economy, external vulnerability from the economy’s reliance on foreign-currency denominated funding, and latent geopolitical risks.”
Furthermore, “Georgia’s strong and improving institutional framework is anchored by close engagement with the European Union (EU, Aaa stable) and IMF. In addition, 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 likely raise exports and economic growth in the medium term,” the report continued.
However, there are nonetheless not insignificant credit challenges hindering the country’s development. They 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.” While the Georgian economy’s “small scale and preponderance of very small companies” is another constraint of its growth potential.
How to improve the situation? Well, the report offers some insight: “Upward pressure on Georgia’s rating could develop as a result of continued institutional and economic reforms leading to higher domestic savings, reduction in external vulnerability, greater diversification, and robust productivity growth. Measures to bolster the resilience of the banking system would also reduce credit risk.”
Alas, the situation could worsen — “downward pressure on the rating” — should there be an increase in “external vulnerability risks or heightening of geopolitical tensions.” While “a deterioration in fiscal metrics could also put downward pressure on the rating.”
Moody’s credit analysis report “elaborates on Georgia’s credit profile in terms of economic strength, institutional strength, fiscal strength and susceptibility to event risk, which are the four main analytic factors in our Sovereign Bond Rating methodology.”
