On 14 August, the global credit rating agency Fitch published their report on Georgia, affirming the country’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ with a negative outlook.  

The report highlighted 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 has underpinned Georgia's resilience to previous 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 negative Outlook of Georgia’s rating reflects the significant impact of the coronavirus pandemic on Georgia's economy. The pandemic is causing a sharp contraction of Georgia's small open economy with a large tourism sector, a deterioration in fiscal accounts, including markedly higher public debt, and increasing risks stemming from Georgia's higher external debt and wider structural current account deficit relative to the median of its 'BB' category peers.

Fitch forecasted that Georgia's economy would contract by 4.8% in 2020, with a rebound growth of 4.5% in 2021. The agency also expects that domestic demand would pick up from the second half of 2020, led predominately by increased capital spending by the public sector. Amid falling oil prices and a weaker demand environment, inflation will continue to fall well into the end of the year. Fitch forecasted the inflation to average 4.9% in 2020, moving towards Georgia’s National Bank inflation projection of 3.5% by the end of the year.

In relation to the government's Anti-Crisis Economic Plan, which equals at 3.9 billion lari (7.8% of GDP) as of 10 August, and accounting for additional measures, Fitch forecasted that Georgia's fiscal deficit would reach 9.2% of GDP in 2020 with a narrowing of the deficit to 4.8% in 2021. Georgia's general government debt-to-GDP ratio will increase to 58.5% in 2020, from 39.8% in 2019, before a modest decline to 56.9% in 2021. Fitch also assumed that the Georgian government would resume fiscal consolidation once the pandemic subsides. This conclusion is based on Georgia's prudent track record and continued engagement with the IMF, currently through Extended Fund Facility (EFF). Georgia's high share of foreign-currency denominated debt (77.7%, 2019) gives rise to exchange rate risk. Increased fiscal risks are partially mitigated by a high share of multilateral debt (73% of total debt, 2019), low interest costs and long maturities with contingent liabilities remain a fiscal risk.

When it comes to Georgia’s Environmental, Social and Corporate Governance (ESG), the report outlined that the country has an ESG Relevance Score (RS) of 5 for both ‘Political Stability and Rights’ and for the ‘Rule of Law,’ ‘Institutional and Regulatory Quality’ and ‘Control of Corruption,’ as is the case for all sovereigns. Georgia had a medium WBGI ranking at 64.0, reflecting moderate institutional capacity, established rule of law, a moderate level of corruption and political risks associated with the unresolved conflict with Russia.