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21.Oct .2020 18:45

Georgia’s high support from official creditors and need for fiscal prudency – Fitch on Georgia

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Georgia’s ability to comfortably meet its 2020 funding needs highlights the strong support it enjoys from official creditors, Fitch Ratings says.

According to the influential rating agency, this has reduced refinancing risk and helped preserve external buffers, but high net external debt remains a sovereign rating weakness.

“Georgia has enacted a large fiscal stimulus program worth 7.8% of GDP in response to the coronavirus, but secured official financing in excess of its 2020 needs, allowing an increase in government deposits projected by Fitch at 5.6% of GDP – reads the summary report on Georgia released today by Fitch Ratings - These deposits provide fiscal space for further stimulus to support growth and borrowing from the official sector on concessional terms at long maturities mitigates immediate refinancing risks from rising public debt, as well as easing wider balance of payments pressures by helping preserve international reserves”.

According to Fitch Ratings, the funds could also be used to repay the sovereign’s sole outstanding Eurobond, which matures in April 2021. Fitch states that repaying the USD500 million Eurobond from government deposits rather than refinancing it would reduce the 2021 debt ratio by 2.8pp of GDP after an 18.7pp jump this year. “The recent draft 2021 budget indicates some appetite for fiscal consolidation. It targets a deficit of 5.1% of GDP in 2021 and would reduce the deficit to 3% of GDP in 2023, in accordance with the fiscal rule. Financing would come through external concessional borrowing and the growing local market – the report further reads - Fiscal plans for 2021 appear consistent with Georgia’s record of prudent fiscal settings and also with its engagement with official creditors, which can act as a policy anchor (for example, adherence to the current IMF program involves meeting agreed fiscal targets, which will be reflected in the final 2021 budget). Prudent fiscal policy is complemented by the record of consistent and credible policy making of the National Bank of Georgia, which we expect to support price stability and economic recovery”.

The Checkpoints talked to top directors of Fitch Ratings that you can watch here and read later on our website.