Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or at minimum each six months in the cases of sovereign, sub-sovereign and supranational organisation issuers.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key ratings assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review of Georgia (BB/Stable; S-3/Stable) on 22 February 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Georgia’s BB long-term ratings account for the nation’s outstanding credit strengths, such as: i) a robust medium-run growth potential (of an estimated 5% a year) supported by access to multilateral donor financing on concessional terms – anchoring economic stability – and strong foreign direct investment inflow; ii) a robust sovereign debt profile, with three-quarters of general government debt owed to official-sector creditors, a comparatively long average debt maturity and moderate interest rates of the outstanding debt portfolio; and iii) a track record of constructive engagement with multilateral partners, such as the IMF and the European Union, advancing a government reform agenda aimed at improving business conditions and raising an economic growth profile. After real growth of 10.6% in 2021 (slightly above Scope’s Dec-21 estimate of 9.8%), growth of 5.5% in 2022 and 5% in 2023 is anticipated.

The ratings are constrained via a number of challenges, including: i) innate vulnerabilities of a small, open economy that remains exposed to external shocks; ii) elevated dollarisation, representing a significant risk to financial stability during phases of currency sell-off; iii) exposure to domestic political instability as well as heightened geopolitical risk. Political polarisation has been elevated since a crisis that came after 2020 parliamentary elections. In an aftermath of Russia’s incursion into the Ukraine, Georgia faces contingent risk surrounding possibility of future Russian escalation of conflict – such as with relation to separatist territories of South Ossetia and Abkhazia.

The Stable Outlook represents Scope’s opinion that risks to the sovereign ratings are balanced.

The ratings/Outlooks could be downgraded if, individually or collectively: i) the medium-run public debt trajectory were to weaken, due, as example, to a looser commitment to fiscal discipline and/or weaker-than-anticipated nominal growth; ii) deterioration in institutional quality and/or escalation in geopolitical risk undermine internal stability and financing conditions; and/or iii) external vulnerabilities were to escalate, resulting in material adverse effects with respect to debt sustainability and reserve adequacy.

Conversely, the ratings/Outlooks could be upgraded if, individually or collectively: i) implementation of reform enhances structural features of the economy, such as institutional quality and/or the long-run growth profile, and/or curtails macro-financial risks; ii) fiscal sustainability improves, e.g., due to enhancement of a fiscal framework and/or higher tax revenue growth; and/or iii) external sector risks were reduced, such as a sustained reduction of current-account deficits and/or further build-up of reserves.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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