Standard & Poor's Improves Georgia's Rating from Stable to Positive

International rating company Standard&Poor’s (S&P) improved Georgia’s sovereign rating from stable to positive and confirmed the rating at “BB.”

The organization’s outlook reads that they forecast Georgia's economy will maintain comparatively high growth rates, even in times of a more difficult external environment.

“We are revising our outlook on Georgia to positive from stable and affirming our 'BB-/B' long- and short-term sovereign credit ratings,” the outlook reads.

Standard&Poor’s also noted that they anticipate the country will remain compliant with the conditions of the funded International Monetary Fund (IMF) program, which should support foreign exchange reserves and investor confidence.

“The positive outlook primarily reflects our view that Georgia's economic and external performance has the potential to outperform our current forecast over the next 12 months. It also reflects the country's continued compliance with the conditions of the existing funded IMF arrangement,” the company said.

S&P reports that Georgia's 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.

“While we expect the external environment to remain challenging, the country's efforts to widen its economic base, to diversify its export geography and foreign investment, and to develop its infrastructure could keep the pace of economic growth above that of peers,” it added.

The company said that Georgia's economy remains narrow and is characterized by comparatively low per capita income levels but they expect prudent policymaking should support sustained growth of 4% on average annually over the medium term.

In addition, it reports that the authorities' reform focus could yield additional growth benefits, particularly in the long run, and they expect per capita income in Georgia will rise, but still remain modest in a global comparison.

“In our view, 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 company said.

However, S&P added that they see downside risks from the ruling Georgian Dream party's constitutional majority in parliament. “Specifically, we believe there could be attempts to centralize power, solidifying Georgian Dream's incumbent position,” they noted. “We also see some risks of heightened volatility given the approaching parliamentary elections in 2020,” the company stressed.

Moreover, Standard&Poor’s report noted risks from regional geopolitical developments, highlighting 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.

Minister of Economy of Georgia Giorgi Kobulia commented on the outlook of S&P, saying the rating growth means that in November, when the S&P's next report will be published, Georgia's sovereign rating may increase even more.

Kobulia said that since 2011, the company has not changed Georgia’s rating until now.

"The positive assessment of S&P is related to the fact that they saw a fairly high economic growth in the country on the background of the recent developments in the region. They also positively assessed implemented reforms and said we have a successful and well-managed monetary and fiscal policy,” the Minister explained.

To note, Moody’s credit rating for Georgia was last set at Ba2 with stable outlook. Fitch’s credit rating for Georgia was last reported at BB with a stable outlook.

By Thea Morrison

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15 April 2019 17:25