“No Need to Panic” as GEL Devaluates

Recent developments in the region, in particular the devaluation of the Turkish Lira and Russian Ruble against the US dollar, have been named as one of the main factors resulting in the depreciation of the Georgian national currency Lari (GEL), which recently dramatically lost value against the US dollar and Euro.

On August 13, the National Bank of Georgia set the official rate, according to which one dollar costs 2.5339 GEL (up from 2.4687 GEL), while one Euro equals 2.9061 GEL (up from 2.8622 GEL).

The exchange rate in the exchange booths and commercial banks is much higher than the official rate.

Deputy Finance Minister Nikoloz Gagua explains that Georgia has a floating exchange rate which means the developments in the neighboring states directly affect the country.

“It should be noted that this dynamic cannot affect the price stability in the country, since the National Bank has all the necessary leverage to maintain it,” he said.

Gagua noted that Georgia has seen a positive trend of economy development since the beginning of the year, adding it is expected that the growth of the economy will be further maintained.

Ekaterine Mikabadze, Georgia’s Deputy Economy Minister, believes the exchange rate will stabilize soon.

“The Turkish Lira depreciation can have only a short-term impact on the GEL… Based on fundamental macroeconomics, we can say that a number of factors contribute to the stability of the national currency,” she stated.

Opposition believes the government is not doing its best to prevent the devaluation of the national currency.

Zurab Chiaberashvili, from the parliamentary minority European Georgia, says the only way to improve the situation is to lower the taxes.

“The government has a very good instrument for this: reduce taxes, especially the excise on fuel, in order not to increase the price after every such currency fluctuation, which then leads to higher prices on other products,” Chiaberashvili said.

Ruling Georgian Dream (GD) member Gia Volsky expects the Lari to gain value again. He says the recent developments were a result of external factors only.

“I think the GEL will definitely stabilize. Because the export volume has significantly increased, the tendency will be maintained, which means the inflow of foreign currency will be much more stable," Volsky said.

Economic expert, Founder of Development and Democracy Center (CDD), Bekar Oikashvili also expects the Lari to stabilize soon.

As he noted, in the first six months of 2018, Georgia's economic growth was 5.7%, and export increased by 30%.

“Despite the positive dynamics, the national currency has temporarily declined over the last few days due to external factors, including the Turkish Lira devaluation and increased prices on Georgian imported products. Taking into account the positive trends, I think the Lari will be stabilized in the near future,” the expert stated.

Executive Director of the Association of Banks Gogita Tsutskiridze excludes fundamental economic factors regarding the currency fluctuation. He believes the recent economic developments are of a temporary character and will not cause major negative effects in the future.

“Currency fluctuations and temporary changes in the currency market are natural. No need to panic about this,” he added.

By Thea Morrison

13 August 2018 15:38