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 Russian invasion of Ukraine.

 

In the current issue of the scenarios, the main drivers of the encompassing macroeconomic variables are the assumptions related to the duration of the Russia-Ukraine war and the possible actions of the world's leading central banks. The baseline scenario considers an increase in consumption due to the growth of lending and migration flows as the leading driver of economic recovery. According to the upside scenario, the recovery of the economy is more sustainable than the baseline scenario, which is related to the expansion of the country's infrastructure, the utilization of the transit potential and the steps taken by the world's leading economies in terms of improving energy independence. The adverse scenario encompasses pressures arising from tightening financial conditions in developed countries due to rising global inflationary expectations and uncertainty related to the prolongation of the Russia-Ukraine war. The current forecast horizon is characterized 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.