Net Foreign Direct Investment inflows in Georgia reach 7.6% of GDP

Baku, Azerbaijan, September 16

By Tamilla Mammadova – Trend:

Net Foreign Direct Investment (FDI) inflows in Georgia totaled 7.6 percent of GDP in 2018, Trend reports citing the report of European Investment Bank (EIB).

Georgia relies on remittances, averaging 11.2 percent of GDP between 2014 and 2018. In 2018, foreign reserves amounted to $3.3 billion or 3.7 months’ worth of imports.

As reported, gross external debt amounted to 109.5 percent of GDP in 2018. The main borrowers are financial corporations, non-financial corporations, followed by the central government.

Some 90 percent of external debt was issued in foreign currency and 85 percent of it had a long-term maturity. As a result, downside risks remain rather significant against the backdrop of a still rather dollarized economy.

The National Bank of Georgia (NBG) has been able to keep inflation under control in the context of a floating exchange rate regime. In 2017, temporary supply-side factors – a rise in oil and tobacco prices – and depreciation pushed inflation above the 4 percent target.

Throughout 2018, the consequences of this effect faded and annual inflation returned below target. Specifically, it stood at 1.5 percent. Current forecasts expect inflation to move to around the target level of 3 percent in 2019, supported by a positive economic performance and a stable lari exchange rate.

The country’s significant level of dollarization still hampers the effectiveness of the monetary policy transmission channel and the absorption capacity of external shocks still remains constrained. Against this backdrop, the government and NBG have put in place credible dedollarization plans which have started to bear concrete positive results in recent years.

In 2018, general government gross debt stood at 44.5 percent of GDP and 156.7 percent of total general government revenue. Government debt is not high and fiscal parameters are within the ongoing IMF program targets. The most concerning factor is the currency structure of debt. In 2017, 79 percent was foreign currency denominated. Therefore, the debt is vulnerable to exchange rate depreciation, the report said.

On the other hand, debt service is relatively low. For example, the percentage of the general government’s interest payments over revenue stands at 4.7 percent, reflecting the prevalence of loans granted by the international financial institutions (IFIs) on relatively favorable terms and with long maturity periods.

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