Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases 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 of 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 Outlook) on 23 July 2024.

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 credit rating is supported by moderate public-debt levels and a declining debt trajectory. Scope sees the general government deficit slightly weakening to around 2.6% of GDP this year before averaging around 2.2% of GDP over 2025-29. This is consistent with the general government debt ratio increasing slightly from a moderate level of 39.2% of GDP at end-2023 to 39.7% by the end of this year before declining to around 34.8% by end-2029.

In addition, above two-thirds of Georgian government debt is on concessional interest-rate terms and the debt portfolio has a comparatively long average maturity (of 7.2 years as of end-2023 despite having shortened in the recent years) and moderate interest-payment burden. 94% of Georgian external debt is due to be repaid to the official sector and is thus not rated by Scope. Georgia plans to repay the single USD 500m Eurobond outstanding due by April 2026 through local bond issuance. Finally, the Georgian economy is supported by robust growth potential estimated at 5% a year medium run.

Furthermore, growth of recent years has well exceeded this trend rate, benefitting from strong services-sector exports, financial inflows, transit trade and favourable arrivals of skilled workers from Russia, Belarus and Ukraine. After very strong real growth of 10.6% in 2021, 11.0% 2022, and 7.5% in 2023, growth is expected to stay strong at 7.5% this year before 5.4% next year.

However, the ratings are challenged by increased institutional and geopolitical risks medium- to long-run, reflecting a weakening of democratic institutions of recent years, rises of risks of further sanctions from western partners and increased geopolitical sensitivities following Russia’s full-scale invasion of Ukraine. This recognises the suspension of Georgia’s IMF programme since last year, recent adoption of the ‘foreign-agent law’, and announcements of sanctions from American and European partners. The institutional and geopolitical environment for Georgia is seen becoming more challenging after forthcoming and potentially-contested parliamentary elections as well as after elections of the United States by this November.

On 28 May 2024, the Georgian parliament and governing Georgian-Dream party adopted the foreign-agent bill, opening the way for repression of critical voices and limitations of free speech ahead of coming elections. The actions taken by authorities during street demonstrations contravened the freedom of peaceful assembly. After the decision of the European Council in December of last year to grant the nation candidate status, the European Council suspended the accession process last month alongside suspending payments under the European Peace Facility (of EUR 30m for this year). The EU is considering further actions contingent on future events during or around the nation’s parliamentary elections.

The United States announced in May sanctions on senior party officials and law-enforcement officers for the undermining of democracy and launched a comprehensive review of bilateral cooperation between the United States and Georgia. The risk of further sanctions as such remains elevated.

Recent political developments have furthermore challenged the external sector, contributing to a drop of official reserves to USD 4.6bn by June 2024 (107% coverage of short-term external debt), from USD 5.4bn as of August 2023 (139%).

Finally, Georgia’s historical advantages stemming from a strong institutional relationship with and backstop from the International Monetary Fund have declined. The USD 280m Stand-by Arrangement, agreed in June 2022, has been on hold since the middle of last year following questions concerning central-bank independence. As Georgia remains vulnerable to external crises due to the small size of the economy, elevated reliance on external financing and dollarisation, the reduction of external-sector cushions and support vehicles curtails resilience.

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

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

Conversely, the long-term ratings or Outlooks could be upgraded if, individually or collectively: i) geopolitical and security risks relevant to the nation were to ease significantly; ii) the quality of institutions and democratic processes are re-strengthened; iii) external-sector risks are curtailed, such as a sustained reduction of current-account deficits and/or renewed build-up of forex reserves; and/or iv) fiscal sustainability improves, due to enhancements of the fiscal framework and/or additional declines of the public-debt ratio.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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

© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.