Georgia Economics - International Aid to Help Georgia Through the Crisis

Georgia is one of the FSU countries most affected by Covid-19 given its reliance on remittances, tourism and capital inflow. We forecast a 6.3% drop in GDP this year. To soften the blow of the virus and lockdown measures, the government has introduced a GEL3.4 bln (6.8% of GDP) fiscal package, which could widen the budget deficit to 8% of GDP this year. However, Georgia has already secured almost $1.5 bln (9.2% of GDP) from IFIs, which should be enough to finance the budget and current account deficits this year. We expect GDP growth to rebound to 5% next year.> Economy likely to shrink 6.3% this year, should rebound next year. As the tourism sector accounts for almost 20% of GDP, the lockdown measures both in Georgia and abroad, as well as restrictions on international flights, have put a significant strain on the economy, which is also facing up to a drop in remittances and FDI. We have downgraded our GDP forecast for this year and now expect it to contract 6.3% (versus -4.2% before), though we expect GDP to rebound next year and expand 5%.> Improved external backdrop, government measures softened the blow from Covid-19. EM currencies recently stabilized against the dollar, providing support for the lari and allowing it to pare its losses. The Georgian government has also stepped in with a GEL3.4 bln ($1.1 bln) fiscal package to tackle Covid-19 and provide support to households and the sectors most affected by the virus. Meanwhile, since inflation has stabilized, the National Bank has been able to start cautiously easing monetary policy, cutting the key rate to 8.25% in June.> International support lowers financing risks. We expect the government's fiscal measures to widen this year's budget deficit to 8% of GDP, while the current account deficit appears set to rise to 9% of GDP due to a drop in exports and remittances. However, Georgia has secured $1.5 bln (9.2% of GDP) from IFIs, which should be enough to finance both deficits. While government officials have said Eurobond issuance is not needed to plug the budget deficit, Georgia could tap the market to refinance a $500 mln sovereign Eurobond due in April 2021.