Baku, Azerbaijan, October 12
By Tamilla Mammadova – Trend:
The current account (CA) deficit to GDP ratio declined sharply to 3.2 percent in second quarter of 2019 in Georgia, as opposed to 8.2 percent of the same figure a year ago, Trend reports citing the TBC Research Group at Georgian TBC Bank.
The bulk of the improvement reflected a reduction in the trade deficit, while higher services exports and an improved income account also contributed positively. Despite Russia’s flight ban and the consequent reduction in tourism inflows, the external sector remained balanced in July-August 2019.
According to the initial estimates of the National Bank of Georgia, the revenues from reduced tourist inflows amounted to around $100 million over the same period, which was well offset by an improved balance of trade in goods as well as by increasing remittance inflows. The decline of inflows is also partially explained by the lari depreciation as tourists appear to spend less in USD terms when the lari is weaker.
Given the seasonality of tourism, it can be argued that the impact of Russian sanctions will likely be lower as the high season is nearing an end, the report said. Also, the decline of tourists from Iran should be moderate in coming months as the base effect comes into play. On the other hand, thedeclining inflows from Iran and Russia is increasingly being offset by higher number of visitors from the EU and Middle East, who usually spend more per trip.
The increasing interest rate differential between lari and USD rates, along with a sharply undervalued lari creates attractive opportunities for investors with the USD as a functional currency to benefit from both channels. Historically, the share of non-residents in Georgian treasuries has been strongly correlated with USD long-term yields.