Baku, Azerbaijan, August 18
By Tamilla Mammadova – Trend:
Price pressures stemming from higher excise tax on tobacco and lari depreciation following the Russian flight ban will lead to an uptick in Consumer Price Index (CPI) in Georgia to a forecast 3.8 percent in 2019, Trend reports via the Fitch Rating Agency.
As reported, inflation in Georgia abated to 2.6 percent in 2018. The agency expects inflation to return towards target in 2020 and 2021 as these effects dissipate.
An augmented fiscal deficit of 2.5 percent of GDP was recorded in 2018, in line with the IMF program target, as revenue over-performance offset higher than planned budget lending and capex.
Fitch expects increased education expenditure, in line with the new legislation introducing a floor on education spending, and higher capital spending in response to the current external shock will widen the augmented fiscal deficit to 2.7 percent of GDP in 2019.
Capitalization of Georgia's banking sector is high at 18.2 percent in 2Q2019 and non-performing loans account for 2.9 percent of total loans, according to IMF methodology.
Fitch's Mannheim Peritonitis Index (MPI) score of 2* reflects a period of rapid credit growth, although new macro-prudential measures including limits on payment-to-income and loan-to-value ratios slowed private sector credit growth to 15 percent in 1Q2019, from 17.1 percent at the end of 2018, while mortgage loans grew at a solid 26 percent.
Dollarisation remains elevated at 62.1 percent of total deposits and 55.8 percent of loans at end-2018, although measures capping new FX-lending are supporting the long-term steady decline.