Fitch, the rating agency, reports that a credible and effective policy framework and stronger governance indicators relative to 'BB' peers underpins Georgia's rating. Long-standing support from official creditors have helped reduced risks to macro stability and supported financing needs. These credit strengths are balanced by significant exposure of public debt to foreign-currency (FC) risk, high financial dollarization, and external finances that are significantly weaker than the majority of 'BB' category rated peers.

 

The Fitch report also says: “Annual inflation accelerated to 13.9% in December, reflecting higher global commodity prices, lari depreciation and a spike in utility prices. With inflation significantly above the target of 3.0% and increased short-term price expectations, the National Bank of Georgia (NBG) tightened monetary policy, increasing the policy rate a cumulative 250bp, from 8.00% to 10.50%. We expect the NBG to maintain a tight policy stance for 2022. Fading out of high base effects should start to bring down inflation from 2022. However, the risk of high inflation expectations becoming entrenched is a vulnerability. We forecast average inflation of 7.0% in 2022, after 9.6% in 2021.”

 

Further, the agency reports that the negative impact of the high current account deficit on a credit rating is balanced by strong and consistent macro policies. The positive impact of the latter on the credit rating implies the strength and consistency of Georgia's macro-policy framework, including a credible monetary policy framework and prudent fiscal strategy. The combination of these policies has historically demonstrated resilience to external shocks, including adverse developments in major trading partner countries, reducing the risks to macroeconomic stability.