Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

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 ratings’ 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 rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Georgia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BB/Stable Outlook; short-term local- and foreign-currency issuer ratings: S-3/Stable) on 12 July 2023.

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 rating 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 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 outstanding debt; 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 sustaining business-friendly conditions and raising economic-growth potential.

Economic growth was strong last year, at 10.1%, despite the Georgian economy’s significant ties with Russia. It benefitted from a robust rebound in tourism exports, as well as from a surge in immigration, financial inflows and transit trade following the escalation of the Russia-Ukraine war. Scope expects strong growth over 2023 and 2024, at respectively 7.5% and 6.1%. After shrinking to 2.6% of GDP in 2022, amid strong growth in tax receipts, the fiscal deficit should moderate further, to 2.2% of GDP this year and 2.1% of GDP by 2024, due to robust revenue growth and a commitment to budgetary prudence. Scope sees the debt-to-GDP ratio declining to 37.5% by 2024, down 2.3pps compared with last year, as a result of robust nominal growth and lower primary fiscal deficits.

The ratings are, however, weakened by the following credit challenges: i) heightened geopolitical risks relevant to Georgia after Russia’s escalation of war in Ukraine; ii) domestic political risks; and iii) the economy’s vulnerability to external shocks due to the small size of the domestic economy alongside elevated reliance upon external funding and elevated dollarisation.

The Stable Outlook represents Scope Ratings’ view that risks to the ratings are currently balanced.

The ratings could be downgraded or the Outlooks revised to Negative if, individually or collectively: i) escalation of geopolitical risks meaningfully elevates adverse long-run implications for the credit; ii) a rise in political risk and/or deterioration in institutions undermine/s the quality of governance; iii) external vulnerabilities were to re-rise, resulting in significant adverse effects as regards external debt sustainability and reserve adequacy; and/or iv) the medium-run public debt trajectory weakens, due, as an example, to a looser commitment to fiscal discipline and/or a weaker-than-anticipated nominal economic growth outlook.

Conversely, the ratings/Outlooks could be upgraded if, individually or collectively: i) geopolitical and security risks relevant to Georgia were to permanently dissipate; ii) the quality of institutions and democratic processes is strengthened; iii) external-sector risks are curtailed, such as a sustained reduction in current-account deficits and/or further accrual of FX reserves; and/or iv) fiscal sustainability improves, such as due to further enhancements of the fiscal framework and/or additional declines in public debt.

The methodology applicable for the reviewed ratings and rating Outlooks (Sovereign Rating Methodology, 27 September 2022) 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, Senior Director

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