BAKU, Azerbaijan, August 15
By Tamilla Mammadova – Trend:
Fitch Ratings has affirmed Georgia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB', the Outlook is Negative, Trend reports via the Fitch.
As reported, the Negative Outlook reflects the significant impact of the coronavirus pandemic on Georgia's economy. The pandemic is causing a sharp contraction of Georgia's small open economy with a large tourism sector; a deterioration in fiscal accounts, including markedly higher public debt; and increasing risks stemming from Georgia's higher external debt and wider structural current account deficit relative to the median of its 'BB' category peers.
Fitch forecasts Georgia's economy to contract by 4.8 percent in 2020, with a rebound in growth of 4.5 percent in 2021. The continued closure of Georgia's land and air borders will have a significant impact on its tourism sector, which directly accounts for 11.6 percent of GDP.
"A gradual recovery in tourism is anticipated in 2021, but it is unlikely to recover to 2019 levels by 2022. The tourism sector remains vulnerable to regional economic developments, with Russia, Turkey, Azerbaijan significant sources of tourism receipts," the Fitch said.
As the Fitch noted, the gradual easing of domestic lockdown measures has led to a mild resumption in economic activity. The latest national estimates show economic contraction year-on-year eased to 7.7 percent in June, after a steep decline of 16.6 percent in April. On aggregate, Georgia's economy in 1H2020 contracted by 5.8 percent year-on-year.
Fitch expects domestic demand to pick up from 2H2020, led predominately by increased capital spending by the public sector. Household consumption will be weighed down by weaker labor market developments. While weaker external demand will have a larger negative net impact on trade than the decline in imports.
Fitch estimates that the government's Anti-Crisis Economic Plan to the coronavirus pandemic equals 3.9 billion lari ($1.2 billion) or 7.8 percent of GDP as of 10 August. This includes the announced budget support of 2 billion lari ($647.2 million) in April and additional measures including one-off child support grants, support for covering university tuition fees and assistance for the self-employed. The Georgian government also plans to double its VAT tax refunds, as well as extend its support for utility fees covering November 2020 to February 2021.
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