Moody's Ratings (Moody's) has changed the outlook to negative from stable on Georgia's government credit ratings. The agnacy affirmed the local and foreign currency long-term issuer ratings and foreign currency senior unsecured rating at Ba2.
The decision to change the outlook to negative reflects our assessment that risks to Georgia's institutional and governance strength are rising, in the context of increasingly challenging domestic and geopolitical trade-offs. Institutions and governance may weaken further, following recent developments that have already negatively affected the strength of civil society, and risk weakening monetary and macroeconomic policy effectiveness. Furthermore, domestic political risk remains elevated, as evidenced by recent street protests, and further social polarization could result from higher tensions between the European Union and Russia. Geopolitical risks have also risen amid prospects of US disengagement from European security and NATO, which could create conditions for more intense Russian interventions, including in the region.
The affirmation of Georgia's Ba2 ratings reflects its strong economic and fiscal position. Moody's expects Georgia's economic growth to remain strong. Georgia's fiscal strength has improved sharply over 2021-2023, and Moody's expects the improved position to persist in the next few years, with a moderate government debt burden and strong debt affordability. Georgia's continued cooperation with its development partners such as the World Bank provides some support to its economic and fiscal resilience. Georgia's local- and foreign-currency country ceilings are unchanged at Baa1 and Baa3, respectively. The four-notch gap between the local currency ceiling and the sovereign rating reflects a relatively small government footprint in the economy and strong institutions which are predictable and reliable in terms of policy action, notwithstanding a relatively high current account deficit and ongoing domestic political risks. The two-notch gap between the foreign currency ceiling and the local currency ceiling incorporates Georgia's external vulnerabilities including a relatively high current account deficit and still high levels of dollarization in the economy.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS / FACTORS THAT COULD LEAD TO AN UPGRADE
Given the negative outlook on the rating, it is unlikely that the rating would be upgraded in the near-term. The outlook would likely be changed to stable if geopolitical and domestic political risks eased materially, which could pave the way for durable improvements to Georgia's institutions and governance.
FACTORS THAT COULD LEAD TO A DOWNGRADE
The rating would likely be downgraded if it becomes increasingly clear that institutional and governance strength has weakened further, which could, together with political risks also weigh on Georgia's economic and fiscal strength. For instance, signs that executive and legislative institutions are weaker than currently assessed, or a further weakening of monetary and macroeconomic policy effectiveness, financial or external stability would also put downward pressure on the rating.
