BAKU, Azerbaijan, December 25
By Tamilla Mammadova – Trend:
The goods trade balance continued to improve, with exports performing better than expected and savings from oil imports in Georgia, Trend reports via Georgian Galt&Taggart analytics company.
Notably, exports drop increased in November compared to previous months, likely reflecting reduced foreign demand due to lockdowns in trading partners.
In 11M2020, exports decreased by 11.3 percent year-on-year and imports fell by 15.9 percent year-on-year , resulting in a 18.9 percent year-on-year improvement in the trade deficit. Furthermore, remittances rebounded strongly from June, and stood at $1.7 billion in 11M2020, up by 8 percent year-on-year. This rebound was supported by growing transfers from the EU (accounting for 41.5 percent of total inflows), as well from other countries (the US, Turkey, Ukraine, Azerbaijan, etc.).
Tourism receipts came to standstill since the pandemic hit. Notably, external funding has been secured by IFIs loan disbursements, while FDI stood at $719 million (6.2 percent of GDP), down 24 percent year-on-year in 9M2020. Assuming adjustment in the trade balance and growth in remittances, the company expects the current account deficit at 9.5 percent of GDP in 2020 and at 8.7 percent in 2021, in the base case.
Recent weakness may be attributed to deteriorated fundamentals as well as increased fiscal spending, weakened sentiments due to pandemic and political uncertainty. National Bank's (NBG’s) FX sales, totaling $855 million YTD, largely offset the FX shortfall due to tourism revenue loss.
"We see recovery in tourism as a key factor for lari in 2021, and do not rule out the rate increase from NBG to support the currency along with FX interventions if tourism recovery delays. Importantly, despite interventions, international reserves increased 12.8 percent year-on-year to $3.8 billion in November 2020, replenished by donor funding," said the report.
"The NBG communicated that it will continue interventions to ease pressure on the currency in 1H2021 also," the report said.
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