September 13, 2018 / 8:19 AM / 2 months ago

Fitch may raise Georgia rating if growth is strong, external shocks avoided

TBILISI, Sept 13 (Reuters) - Fitch Ratings may upgrade Georgia’s sovereign credit rating if the country maintains strong economic growth and macroeconomic stability and further improves its finances.

Georgia is recovering from a decline in exports and a plunge in the currencies of Russia, Turkey and Azerbaijan, its main trading partners. That has depressed growth in recent years.

“If we see positive development in both of these areas (economic growth and fiscal finances), there is a potential for sovereign rating to go up,” Kit Ling Yeung, associate director of sovereign ratings at Fitch, told Reuters on the sidelines of the agency’s annual conference in the capital Tbilisi.

Fitch reaffirmed Georgia’s long-term foreign currency rating at “BB-“ with a positive outlook last month.

Risk of a strong external shock might hurt Georgia’s growth prospects, Ling Yeung said. Fitch expects the Georgian economy to expand by 5.2 percent in 2018 and 4.9 percent in 2019.

Growth accelerated in the first seven months of 2018, rising 5.5 percent year-on-year compared with 4.4 percent in the same period of 2017 as exports recovered and remittances from abroad rose. The government expects 4.5 percent growth in 2018, or more than double the growth rate of its neighbour Russia.

“We expect the growth to be largely domestically driven,” Ling Yeung said, adding that it would be depend largely on the amount of investment in the Georgian economy.

Foreign direct investment in Georgia in the second quarter rose 9.4 percent year-on-year. Total FDI was $389.2 million, up from $355.8 million in the second quarter of 2017 and $287 million in the first quarter of 2018. Energy and transport got the most investment; Azerbaijan was the biggest investor.

Domestic consumption, favourable governance and double-digit growth in tourism helped the economy, which resisted external shocks in neighbouring countries, Ling Yeung said. “It’s quite encouraging to see that the Georgian economy seems to be quite resilient, despite the fact that we’ve seen some regional volatility,” she said.

Western countries imposed sanctions on Russia in 2014 for its role in the Ukraine crisis. The sanctions were extended for alleged meddling in the U.S. elections and Russia’s suspected the poisoning of a Russian former agent in Britain.

The threat of further sanction has put pressure on Russia’s rouble and government bonds since early August.

Georgia’s economic weaknesses are high dollarisation, a large current account deficit — about 10.3 percent of the gross domestic product — and government debt worth over 40 percent of GDP, Ling Yeung said.

Fitch projects Georgia’s fiscal deficit will narrow to 2.6 percent of GDP in 2018 and 2019 from 2.9 percent last year, Ling Yeung said. Annual inflation is expected to remain around 3 percent target. (Editing by Larry King)

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