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Georgia's fiscal indicators characterized by small budget deficits

Finance Materials 16 October 2019 17:12 (UTC +04:00)

Baku, Azerbaijan, October 16

By Tamilla Mammadova – Trend:

Georgia's fiscal indicators are characterized by small budget deficits and moderate public debt, Trend reports with reference to S&P Global Ratings.

"Since 2011, the budget deficit of the expanded government averaged 2.4 percent of GDP. The total government debt has been maintained at around 45 percent of GDP since 2016," said the report.

“At the same time, this indicator is largely dependent on exchange rate fluctuations, taking into account a significant share of the government’s foreign currency debt - 80 percent of the total debt. In particular, we expect that the expanded government's debt as a percentage of GDP will increase slightly in 2019 due to the depreciation of lari (by 10 percent from the beginning of the year),” S&P said.

According to the company, a high level of dollarization of the economy still has a negative impact on the effectiveness of monetary policy. Despite the recent decline, the dollarization level of residents' deposits remains high - about 62 percent.

“We positively assess the efforts of the country's leadership to reduce the level of dollarization of the economy, including, among other things, providing for various liquidity requirements in lari and foreign currency, implementing pension reform, developing domestic capital markets and introducing a deposit insurance system,” said the company.

According to forecasts, in the next four years, the volume of loans issued by Georgian banks will increase by an average of 14 percent per year (taking into account the dynamics of the exchange rate), which is below the 19 percent observed between 2013 and 2018. Despite the persistence of some vulnerability associated, for example, with the retail lending segment, S&P positively assesses the regulator's actions to reduce risks.

The measures developed include additional capital requirements for systemically important banks, as well as tightening control over the non-banking financial sector.

At the same time, it is noted that TBS Bank is of high systemic importance: it accounts for almost 40 percent of loans and liabilities (net) of Georgia's banking sector.

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