On 12 February, the global credit rating agency Fitch affirmed Georgia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ with a negative outlook. 

The report emphasised that Georgia's ratings are supported by strong structural indicators, such as governance and business environment, relative to 'BB' category peers. “A consistent and credible policy framework underpins Georgia's relative resilience to shocks. These credit strengths are balanced by a high share of foreign-currency denominated government debt, low external liquidity and higher external financing requirements relative to peers,” the report added.

The negative outlook in the report was reflected on the significant ongoing impact of the Covid-19 pandemic on Georgia's economy. “The pandemic is causing a sharp contraction of Georgia's small open economy with a large tourism sector, a marked deterioration in fiscal accounts, including higher government debt, and increased vulnerabilities stemming from Georgia's higher external debt and wider structural current account deficit relative to the median of its 'BB' category peers,” the report said. 

The agency forecasted Georgia’s real GDP growth of 4.3% in 2021 and 5.8% in 2022, after a pandemic-driven contraction estimated at 6.1% in 2020. It also projected Georgia's economic recovery at a faster pace than the median growth rates of its 'BB' peers (4.0% in 2021 and 3.7% in 2022).  

Georgia's current account deficit (CAD) was estimated to have widened to 12.0% of GDP in 2020 from 5.5% of GDP in 2019. “Goods exports fell less than expected, helped by a relatively well diversified base of trading partners, and remittance inflows were surprisingly strong. However, services exports were significantly affected by the halt to inward tourism,” the report said. Fitch forecasted Georgia's CAD to widen to 12.5% of GDP in 2021, before narrowing to 7.9% in 2022, with a domestic driven recovery and a weak outlook for tourism that would mean a higher pace of growth in imports than exports.

According to Fitch, fiscal policy would remain accommodative in 2021, as authorities continue to provide targeted support for individuals and businesses affected by the pandemic. This includes the continuation of income tax relief for businesses that retain low wage workers, the credit guarantee scheme for small and medium enterprises (SMEs), as well as social transfers for vulnerable households and the unemployed. The report added that the economic recovery and commitment by the government to return to its fiscal rule by reaching a deficit below 3.0% of GDP by 2024, would support medium-term debt reduction. “Debt sustainability is underpinned by a large share of multi and bilateral debt (approximately 72% of total debt) with long average maturities and low interest costs. However, a large share of foreign-currency debt (74.8% of total debt) leaves the sovereign exposed to exchange rate risk,” it was underscored.  

“The re-election of Georgian Dream reinforces our expectation of economic policy continuity and we do not see this being disrupted, despite high political tensions given the current boycott of parliament by key opposition parties. Georgia's governance and ease of doing business indicators outperform the median percentile of its 'BB' peers, and commitment to the current International Monetary Fund External Fund Facility programme helps maintain a positive structural reform agenda,” the report concluded.