Georgia’s Finance Minister Predicts GEL Will Gain Value

Georgia’s Finance Minister, Ivane Machavariani believes the national currency GEL (Lari), which has been depreciating against the US Dollar and Euro, will start gaining value soon.

The Minister says the Lari depreciated due to external shocks. He also affirms that the Georgian economy is healthy.

"First of all, this is due to the fact that the region is not developing rapidly ... Regarding the foreign shocks, the currency rate is the first to be affected and our main goal is not to let it move to the real sector. I believe the GEL will start to strengthen,” he said.

Another reason for the Lari devaluation named by the minister, was the June 20 developments in Georgia, which started with anti-Russian protest rallies in the capital and was followed by a Russian ban on direct flights with Georgia. This, in turn, hit the tourism sector and according to the minister, resulted in a $60 million loss for Georgia.

The minister says there are all preconditions to expect the national currency to gain value.

“Real economic growth was 6% in July, we see it in August as well, and we can say that it will be quite high. This means that if there are enough jobs and the production of goods and services does not diminish, the economy is fundamentally healthy and it will undoubtedly lead to the strengthening of the GEL,” Machavariani said.

He also noted that the budgeting process will start soon, during which he will be able to talk in detail about the 2020 economic plans.

Chairman of the Committee on Finance and Budget, Irakli Kovzanadze, says that the real effective exchange rate of the GEL is more impaired than dictated by the economy.

"The reality is that we have a 5.1% economic growth, including a 6.1% growth in July, a tendency of reduced unemployment and expected employment growth. We have improved current account deficits, but the depreciation of the Lari covers any positive effects. It is such a heavy burden to our population,” he added.

He said the authorities, the National Bank and the Ministry of Finance, need to take "more coordinated, bold and sometimes extraordinary steps" to stabilize the Lari exchange rate.

Irakli Mezurnishvili, a member of the ruling Georgian Dream faction, also noted that the stability of the Lari is very important for the development of the economy.

“It is clear that the Lari is excessively devaluated. In all other macroeconomic indicators we do have some stability, but when our country is dependent on imports, despite the current account deficit being at a historically lowest indicator, of course, the exchange rate clearly affects the prices of products as well,” he stated in Parliament.

Mezurnishvili also noted that despite the objective factors causing the devaluation of the national currency - foreign shock, regional developments, economic situation in the countries with which Georgia has trade relations, the events of June 20, result in a difficult situation for the business.

The official GEL rate set by the National Bank of Georgia, shows that $1 equals 2.9636, while one Euro is 3.2683 GEL. Around 10 days ago the dollar rate was GEL 2.9457 and Euro was at GEL 3.2523.

New Prime Minister of Georgia, Giorgi Gakharia, whose cabinet was approved by MPs on September 8, says that Georgia has a small and absolutely open economy and the Lari exchange rate is an integral part of daily life, which is directly related not only to the Georgian economy but also to its main trading partners as well.

“However, this does not mean that the GEL rate should fluctuate that way. It should also be remembered that the depreciation of the Lari has had very important effects on our population and our economy. With maximum coordination and work with the National Bank, we will do our best to maintain both economic and financial stability,” he added.

By Thea Morrison

09 September 2019 16:18