The National bank of Georgia publishes the new issue of macroeconomic forecast scenarios for the purpose of an International Financial Reporting Standard IFRS 9.
The scenarios are intended for promoting transparent, consistent, and efficient financial reporting in financial institutions. The current update of the scenarios serves to provide the financial institutions in a timely manner with forward-looking macroeconomic information in the face of great uncertainty caused by the COVID-19 pandemic.
In the current issue of the scenarios, the main drives of the encompassing macroeconomic variables are the possible spread of the COVID-19 pandemic and the pace of vaccination. The baseline scenario considers gradual economic recovery starting from the current year. This is due to the increased scale of vaccinations, which makes it possible to gain the control over the spread of the virus. According to the upside scenario, the economic recovery is more widespread and sustainable compared to the baseline. This is achieved thanks to acceleration in vaccine rollouts both globally and within the country as well as buoyant investment activity.
The adverse scenario assumes that the spread of the pandemic continues at high rates so that containment measures are reintroduced. This leads to a contraction in economic activity. The current forecast horizon is distinguished by more than usual uncertainty and elevated risks.
According to IFRS 9, forward-looking information is essential for credit risk assessment. In particular, expected developments in macroeconomic and financial environment as well as domestic and external risks should be accounted for when assessing expected credit losses. This will facilitate timely recognition of credit risk, and therefore contribute positively to financial stability.
In addition, it is important that the macroeconomic assumptions used by different financial institutions are comparable. This can be accomplished by utilizing the published macroeconomic scenarios.
