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 2 August 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 economic growth potential (of an estimated 5% a year) and strong foreign direct investment inflows; ii) a strong sovereign debt profile, with three-quarters of general government debt owed to official-sector creditors, a comparatively long average debt maturity and moderate average interest rates of the outstanding debt portfolio; and iii) a track record of constructive engagement with multilateral partners, such as with the IMF and the European Union, advancing a government reform agenda aimed at enhancement of business conditions and raising an economic growth profile.

Real economic growth was strong in 2021, of 10.4%, boosted by recovery of private consumption, of investment as well as of international tourism. Russia’s war in the Ukraine has resulted, however, in headwinds for economic activity this year, in view of the Georgian economy’s strong trade linkages with the warring nations. Nevertheless, Scope expects growth of a robust 8.5% in 2022, before convergence on a 5% medium-run potential growth rate by 2023.

The ratings are constrained by several credit challenges, such as, firstly, exposure to heightened geopolitical risk as well as domestic political instability. In the aftermath of Russia’s full-scale invasion of the Ukraine, Georgia faces contingent risk surrounding possibility of future Russian aggression that affects the region – such as with respect to Georgian separatist territories of South Ossetia and Abkhazia. Political polarisation has been elevated since a crisis after 2020 parliamentary elections. Secondly, innate vulnerabilities of a small, open economy mean the Georgian economy is exposed to external shocks. Finally, elevated dollarisation represents a significant risk to financial stability during periodic phases of currency sell-off.

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) geopolitical risks further escalated; ii) deterioration in institutional quality were observed; iii) external vulnerabilities were to escalate, resulting in material adverse effects with respect to debt sustainability and foreign-exchange reserve cushions; and/or iv) the medium-run public debt trajectory were to weaken, due, as an example, to a looser commitment to fiscal discipline and/or weaker-than-anticipated nominal economic growth.

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

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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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