Georgia's 'BB/B' sovereign ratings affirmed at S&P Global, outlook stable
Investing.com -- S&P Global Ratings has affirmed its 'BB/B' long- and short-term sovereign credit ratings on the Government of Georgia, maintaining a stable outlook. The rating agency predicts a deceleration in Georgia's real GDP growth to 5.7% this year, partly due to political volatility negatively impacting investor confidence.
Elevated political tensions and governance issues pose risks to growth, balance of payments, international reserves, and public finances by potentially affecting the inflows of concessional funding and foreign direct investment (FDI). Georgia's moderate and highly concessional government debt, however, provides a policy buffer.
The stable outlook balances Georgia's strong economic and fiscal performance against growing policy and political uncertainty, expected to persist over the next 12 months. Rating pressure could originate from a significant escalation in political tensions, further undermining investor confidence and hindering Georgia's growth prospects.
A positive rating action could be considered within the next 12 months if Georgia's economic and fiscal performance exceeds S&P's projections and political uncertainty diminishes. The rating on Georgia is constrained by the country's relatively low income levels, weak external position, and dependence on imports and significant external liabilities.
Georgia's economy demonstrated robust growth in 2024, recording a growth rate of 9.4% year on year, driven by domestic consumption, rising wages, and a buoyant tourism sector. However, growth is projected to moderate to 5.7% in 2025 and 5% in 2026 due to a slowdown in consumption and a decline in investment, largely attributed to diminished investor confidence due to political volatility.
The 2025 budget targets a deficit of 2.5% of GDP, remaining broadly unchanged from 2024, while projecting an economic growth rate of 6%. Net general government debt should remain moderate at 35% of GDP in the coming years. The current account deficit is projected to widen to 4.6% of GDP in 2024, up from 5.5% in 2023, primarily due to a slight deterioration in the trade balance from weaker external demand.
Amid prolonged political uncertainty, the lari depreciated by approximately 4.4% against the U.S. dollar in 2024, prompting the National Bank of Georgia's (NBG) interventions in the foreign exchange market to stabilize volatility. These interventions resulted in net sales of an estimated $435 million, contributing to an 11.2% year-on-year decline in foreign currency reserves, which now stand at $4.4 billion.
Inflation was on an upward trend since the start of 2025, reaching 2% in January, primarily driven by base effects. Despite inflation remaining below the NBG's target of 3% in recent months, the NBG proactively reduced the monetary policy rate (refinancing rate) by 250 basis points over 2024, bringing it down to 8%.
Georgia's banking system remains stable, with strong capitalization levels and sufficient liquidity buffers. Nonperforming loans (NPLs) decreased to 2.6% in the second quarter of 2023 from 4.7% in mid-2022, thanks to continued credit expansion and strong economic growth. The sector is dominated by two banks holding over 70% of the market share in crucial market segments.
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