Georgia’s commitment to liberalising trade, and strategic projects, could boost credit profile

Georgia’s (BB/Stable) long-term creditworthiness will benefit from the government’s liberal trade policy if underpinned by the continued implementation of recently signed trade agreements, as well as strategic projects, according to Scope Ratings.

In its baseline scenario Scope expects a gradual reduction in Georgia’s current-account deficit to around 9% of GDP in 2022, driven by a steady recovery in its main trading partners, and benefitting from the recent free-trade agreements.

“The reforms undertaken by the Georgian government aimed at liberalising the foreign-trade regime and customs procedure will foster the economy’s resilience to external shocks and mitigate current-account vulnerabilities with positive rating implications over the medium term,” writes Levon Kameryan in Scope’s latest analysis of the country.

Georgia’s commitment to the EU-Georgia Association Agreement, which introduced a mutually-preferential trade regime, the Free Trade Agreements (FTA) with China, the European Free Trade Association (EFTA) countries, a planned pact with Hong Kong and discussions with India are credit positive, Scope says. Georgia may further benefit from the launch of the Baku-Tbilisi-Kars railway, connecting it with Azerbaijan and Turkey, the construction of the Anaklia Sea Port positioning it as a key Asian trade corridor, and the likely opening of alternative trade routes with Russia.

Scope highlights positively the FTA between Georgia and China, which took effect on 1 January. Georgia is now the only country in the region to have similar arrangements with both China and the EU, supporting its importance as a trade and production hub. The deal, which covers goods, services, intellectual property rights, electronic commerce and the environment, eliminates levies on 96.5% of Chinese exports to Georgia and 91% of Georgian exports to China, with an additional 3% within the next five years.

Georgia's BB ratings balance robust economic growth, moderate levels of public debt, and favourable governance and business environment against the economy’s vulnerability to short-term shocks, persistent current account deficits and reliance on external financing. The Stable Outlook reflects Scope’s view that the country’s largely favourable fiscal metrics are likely to be maintained, even if growth were to slow down.

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