FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT JUNE 2012
GEORGIAN STOCK EXCHANGE
CAPITAL MARKET DEVELOPMENT AND ECONOMIC OUTLOOK
Despite existing concerns that political process
in Georgia may develop in unpredictable
manner, fortunately, clear signs of increased
stability and inevitability of elections process
are in place. Today, practically there is no doubt
that for political parties the next two years will be
period of preparation to elections (parliamentary
- 2012 and presidential - 2013), election
campaigns and the related processes. This will
definitely put grounds for stable political and
economic development of the country.
No doubt, there still remain many political
and social problems, first of all related with
occupation of 20% of the country (Abkhazia
and Tskhinvali region) by Russian military forces
and the heaviest burden of about half million
refugees from the mentioned regions. However,
the likeliness of worsening of the situation is
very low, though chances for restoring territorial
integrity of the country in 2012 are also very low.
As for the economic situation, until mid-2008,
the Georgian economy was growing rapidly,
fueled by high levels of foreign direct investment
and strong credit growth. But in August of that
year, the armed conflict with Russia over the
disputed Tskhinvali region proved a devastating
setback for Georgia’s economy, prompting
the authorities to request a US$ 750 million
Stand-By Arrangement (SBA) from the IMF and
to secure emergency financing from donors
totaling US$ 4.5 billion for next three years. In
the months that followed, Georgia’s difficulties
were compounded by the impact of the
global economic crisis. However, the country
authorities’ economic program has been
successful in putting a floor on the contraction
of economic activity in 2009 and in restoring
confidence. On the back of these achievements,
the economic recovery that started in the
second half of 2009 transferred into impressive
growth in 2011.
According the National Statistics Office of
Georgia in 2011, using the rapid estimation
method, the yearly real GDP growth reached
6.8% (compared with projected 4.5%).
The Trade turnover for 2011 reached US$9247
mln, up 36% y-o-y. Export grew faster than
import and the Trade Balance Deficit share in
trade turnover has downward trend since 2007.
In 2011 the ratio narrowed down to 52.7%.
At a White House meeting on January 30, 2012,
US President Barack Obama and Georgian
President Mikheil Saakashvili have among
other issues discussed security cooperation
and a possible free-trade agreement. President
Obama told the Georgian leader that a
free-trade agreement (FTA) with Tbilisi was a
“possibility” and would be a “win-win” situation
for both countries.
On November 22nd, 2011 Standard & Poor’s
Ratings Services raised its long-term foreign
and local currency ratings on the Government
of Georgia to “BB-“ from “B+”. At the same
time, the short-term foreign- and local-currency
ratings were affirmed at ‘B’. The outlook on the
ratings is stable. The recovery rating is ‘4’. The
transfer and convertibility (T&C) assessment
is ‘BB’. In accordance with the report, the
upgrade reflects Georgia’s strong growth
prospects and improving public finances. These
strengths are underpinned by its commitment
to market-oriented policies and its previous
structural reforms and fiscal consolidation. The
upgrade also reflects an important stabilization
in Georgia’s geopolitical and domestic political
environments.
S&P’s estimates that per capita GDP growth
will average just over 6.0% during 2005-2014,
above that of similarly rated peers. FDI inflows
(averaging 6% of GDP annually) alongside
public sector investment will support growth in
tourism, agriculture, energy, and infrastructure.
Georgia’s fiscal deficit has narrowed
significantly to an estimated 3.7% of GDP in
2011. This is from 9.2% in 2009. S&P’s expects
that the government will adhere to its newly
legislated fiscal rules, which oblige it to reduce
the deficit to 3.0% of GDP by 2013.
In December 2011 Fitch Ratings has upgraded
Georgia’s Long-term foreign and local currency
Issuer Default Ratings (IDR) to ‘BB-’ from
‘B+’. The Outlooks on the ratings are Stable.
The agency has also upgraded the Country
Ceiling to ‘BB’ and affirmed the Short-term
foreign currency IDR at ‘B’. The rating on senior
unsecured debt has been upgraded to ‘BB-’
from ‘B+’. According to Fitch:
• Georgia has reduced its budget deficit to an
estimated 3.7% of GDP in 2011, from 6.6%
of GDP in 2010. The high share of capital
spending and the government’s current
surplus gives it further flexibility if needed.
• General government debt is set to decline
in 2012-13 from the peak of 37% of GDP
reached in 2010. Concessional terms bring
down debt servicing costs relative to peers.
Georgia has smoothed its maturity profile
following a successful Eurobond issue in
April 2011, whose proceeds were used
to buy back the majority of a Eurobond
maturing in 2013.
“The upgrade reflects Georgia’s strong growth
performance, the government’s progress in
reining in the fiscal deficit, a reduction in inflation
and a rise in foreign exchange reserves,” says
Charles Seville, Director in Fitch’s Sovereign
team. “We consider the second in a row
upgrade of Georgia by the rating agencies
as yet another reflection of our continuous
adherence to the market economy principles
and the macro-economic prudence. This is
very good news in the environment when
there are too few good economic news on the
global market.” commented Nika Gilauri, Prime
Minister of Georgia.
As for the business climate in the country, the
country has made remarkable strides over
the last few years—the World Bank’s Doing
Business Index ranks Georgia first in Eastern
Europe and Central Asia and first among
lower middle-income countries. Georgia has
also moved up quickly through the ranks
of Transparency International’s Corruption
Perception Index, and there’s a general
perception that interactions between the public
and the government are now free of corruption.
• Real GDP is set to grow by an average
of 5.5% in 2012-13, faster than the ‘BB’
median, as Georgia reaps the benefits
of past structural reforms. Georgia is
investing in infrastructure that will enable it
to take full advantage of its role as a transit
country for the region. Growth areas include
hydroelectric power and tourism. Exports
are diversified by product and by market,
affording some resilience to slower global
growth.
Key Information Contacts
National Bank of Georgia www.nbg.gov.ge
Ministry of Finance of Georgia www.mof.ge
Georgian Central Securities Depository www.gcsd.ge
Georgian Corporate Directors Association www.gcda.ge
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