BAKU, Azerbaijan, October 8
By Tamilla Mammadova – Trend:
In general, S&P Global Ratings considers the floating exchange rate to be supportive of Georgia’s sovereign credit profile as it allows the economy to promptly adjust to changing external conditions, Aarti Sakhuja, Associate Director, Sovereign Ratings at S&P Global Ratings told Trend.
"Our ratings take a longer view of any central bank’s track record in inflation management. In Georgia, despite occasional lari volatility passing through and resulting in higher inflation, inflation has been low on average over the past 10 years," she said.
According to the associate director, the depreciation of the local currency tends to make imported goods more expensive, sometimes with a lag.
"However, other considerations could offset the impact of this on the overall inflation print, for instance, the prices of domestically produced goods and services. We also note that lower domestic demand -- as a result of containment measures to prevent the spread of COVID-19 – has had a disinflationary effect over the past few months," she added.
As Sakhuja noted, a large depreciation of the local currency also tends to increase debt service costs particularly for unhedged borrowers in foreign currency.
"We also consider the impact on the government’s borrowing costs, given that nearly 80 percent of Georgia’s government debt is denominated in foreign currency. We believe however that risks to the sovereign debt profile are partially mitigated by its long average maturity and a large proportion of borrowing from concessional lenders," she added.
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