Moody’s Ratings (Moody’s) changed the outlook to stable from negative on Georgia’s government credit ratings and affirmed the local and foreign currency long-term issuer ratings and foreign currency senior unsecured rating at Ba2.

“The change to a stable outlook reflects Moody’s assessment that the balance of risks has returned to stable, with a mix of positive and negative factors. On the positive side, while Moody’s had previously assessed material downside risks to the economy related to Russia"s invasion of Ukraine, recent developments have shown significant economic resilience. Moody’s expects a solid macroeconomic performance to continue. Georgia’s economic institutions have contributed substantially to the country’s resilience. However, on the downside, concerns over governance at the National Bank of Georgia (NBG) have developed as management structure changes raise questions around central bank independence with potential negative implications for the relationship with the International Monetary Fund (IMF). Moreover, geopolitical risks stemming from Russia’s invasion of Ukraine remain high, with uncertainties around spillovers from Russia’s conflict with Ukraine and evolving strategic position in the region likely to persist.

The affirmation of Georgia’s Ba2 ratings reflects the strength of its macroeconomic and fiscal policy frameworks, as well as the economic policy institutions’ commitment to them. This has contributed to better than expected growth outcomes in 2022 and 2023, including thanks to effective management of the global inflationary shock. Georgia’s continued cooperation with its development partners, a manifestation of institutional strength, is critical to building economic and fiscal resilience and remains an important underpinning of the current rating. The rating is also supported by high fiscal strength, with a broadly stable or even gradually falling government debt burden at moderate levels and strong debt affordability. These strengths continue to be balanced against Georgia’s small economy; and very high geopolitical risk in particular in the aftermath of Russia’s invasion of Ukraine.

Georgia’s local- and foreign-currency country ceilings are unchanged at Baa1 and Baa3, respectively. The four-notch gap between the local currency ceiling and the sovereign rating reflects a relatively small government footprint in the economy and strong institutions which are predictable and reliable in terms of policy action, notwithstanding a relatively high current account deficit and ongoing domestic political risks that point to some country risk. The two-notch gap between the foreign currency ceiling and the local currency ceiling incorporates Georgia’s external vulnerabilities including a relatively high current account deficit and still high levels of dollarization in the economy which increase transfer and convertibility risks.

Moody’s expects GDP growth in Georgia to remain solid, supported by strong real wage growth and employment which will drive consumer demand growth to play a greater role following the robust recovery in investment, tourism and construction which drove overall growth in 2022 and 2023. Moody’s expects growth will stabilize at 5.5% in 2024 and remain around potential growth of 5-5.5% in the medium term, following 11.0% in 2022 and 7.5% in 2023. Stronger confidence in Georgia’s economic resilience attenuates the potential spillover risks of Russia’s invasion of Ukraine, which was a driver of the negative outlook on the sovereign rating announced in April 2022.

In line with the economic recovery and consistent with Georgia’s fiscal policy framework, Moody’s also expects fiscal repair to continue and fiscal strength to remain very strong. After the budget recorded a small surplus in the first half of 2023 supported by buoyant fiscal revenues, Moody’s estimates a full year deficit of around 2.6% of GDP for 2023 and expects a narrowing to 1.1% in 2024. Robust nominal GDP growth and small budget deficits will combine to lower Georgia’s general government debt to GDP ratio gradually, from already moderate levels of 38.3% in 2023, towards 35.4% in 2025, well below the debt burden of similarly-rated sovereigns.

Long a source of external vulnerability, Georgia’s current account deficit has continued to narrow and seen an improvement which Moody’s assesses to be structural, reflecting higher domestic savings due to greater public saving, as fiscal repair has continued. At the same time, private savings have also risen, driven by cyclical increases in incomes, as well as structural pension reforms implemented in previous years”, - reads the report.