Standard & Poor's raises long-term ratings on government of Georgia

Standard & Poor's raises long-term ratings on government of Georgia

Azerbaijan, Baku, Nov. 23 /Trend/

Standard & Poor's Ratings Services raised its long-term foreign- and local-currency ratings on the Government of Georgia to 'BB-' from 'B+', the agency reported on Wednesday.

The short-term foreign- and local-currency ratings were affirmed at 'B'. The outlook on the ratings is stable. The recovery rating is '4'. The transfer and convertibility (T&C) assessment is 'BB'.

According to the report, the upgrade reflects the agency's view of Georgia's strong growth prospects and improving public finances. These strengths are underpinned by its commitment to market-oriented policies and its previous structural reforms and fiscal consolidation.

The upgrade also reflects the agency's view of an important stabilization in Georgia's geopolitical and domestic political environments. The ratings on Georgia are constrained by external vulnerabilities stemming from its large net external liability position, limited monetary flexibility due to high dollarization, and low GDP per capita. Political risk does remain a constraint on the ratings, although in our view this continues to ease.

Standard & Poor's estimates that per capita GDP growth will average just over 6.0 percent during 2005-2014, above that of similarly rated peers.

Standard & Poor's expects economic expansion will be underpinned by continued growth in construction, tourism, and exports. It will be financed by a rebound in credit to the private sector and further development of the agricultural sector, which employs around 50 percent of the working population, the report said.

Standard & Poor's forecasts GDP per capita in Georgia to reach a still-low $3,300 in 2011.

Georgia's fiscal deficit has narrowed significantly to an estimated 3.7 percent of GDP in 2011, the report said.

Standard & Poor's expects the government will adhere to its newly legislated fiscal rules, which oblige it to reduce the deficit to 3.0 percent of GDP by 2013.

According to the report, Georgia's large net external liability position of over 200 percent of current account receipts (CARs) and just under 100 percent of GDP remains a key source of vulnerability, although the government's Eurobond issue in April underlines Georgia's access to market-based funding. Further, $2 billion (15 percent of GDP) in committed but not yet disbursed funds from official lenders will continue to support external funding needs.

The current account deficit narrowed sharply in 2009, but has remained elevated at over 10 percent of GDP, the report said. Standard & Poor's believes increased hydropower capacity, rising exports, and, to a lesser extent, government investment to increase productivity in agriculture, will help increase CARs.

Tourism in particular has emerged as an important part of the exports equation, with receipts in 2011 estimated to reach 6 percent of GDP; up from 4 percent of GDP in 2010. Usable reserves have also improved in 2011; these are equivalent to more than three months of current account payments, the report said.

Standard & Poor's expects the continued, albeit slow, normalization of relations with Russia, the maturing domestic environment, and evidence of improving institutionalization reduce some of the political risk in Georgia.

The signing of the bilateral World Trade Organization deal between Russia and Georgia in November 2011 is unlikely to improve the geopolitical stalemate in the near term. However, this is the first time the two sides have negotiated directly since the 2008 conflict and the deal will introduce a greater international presence (regarding customs monitoring) in the region, the report said.

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