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 drivers of the encompassing macroeconomic variables are the possible actions of the world's leading central banks and the spread of the COVID-19 pandemic. In the baseline scenario the major driver of economic recovery is domestic demand alongside the expected resumption of international trade and tourism inflows induced by increased global economic activity. According to the upside scenario, the recovery of the economy is more sustainable compared to the baseline scenario, which is achieved thanks to the improvement of market sentiment and high investment activity. The adverse scenario encompasses burden coming from tightening financial conditions in developed countries due to rising global inflation expectations and increased uncertainty over the duration of the pandemic. This is reflected in the reduction of economic activity in the country. The current forecast horizon is distinguished by higher 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.