FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2011
GEORGIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
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, after
quite peaceful and constructive atmosphere
local government elections in 2010, practically
there is no doubt that for political parties the
next three 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. 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
continued in 2010.
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
2011 are also very low. According to Mr. Murilo Portugal, Deputy
Managing Director and Acting Chair of the IMF
Executive Board's,:
“…Georgia’s economic recovery has
strengthened, as evidenced by better-than-
expected growth and the stabilization of the
exchange rate. The authorities’ economic
policies, focused on tighter monetary and
fiscal policies and exchange rate flexibility,
will lay the groundwork for achieving
macroeconomic stability and growth based on
private sector financing and investment. While
short-term risks to growth appear balanced,
significant downside medium-term external
risks remain, related in particular to the
uncertainty surrounding the recovery in private
capital inflows, including FDI.
As for the economic situation, Georgia’s
economy is showing tentative signs of turning
around, but a full-fledged recovery will depend
on a more upbeat global environment and the
easing of credit conditions in the country.
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 $750 million Stand-By
Arrangement (SBA) from the IMF and to
secure emergency financing from donors
totaling $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.
Real GDP is projected to grow by 4.5 percent
in 2011, based on the expectation that private
sector demand will strengthen as the fiscal
stimulus is withdrawn. Inflation is projected to
decline (to around 6 percent) by end-2011,
with risks mostly on the upside.
“The budget for 2011, which provides for a
further reduction of the deficit of about 2½
percent of GDP, is consistent with the
authorities’ objective of reestablishing fiscal
sustainability. The authorities’ commitment to
cap expenditure in 2011 is commendable,
“While the recent increase in the policy rate
and the decision to tighten reserve
requirements will help to bring down inflation
in 2011, the authorities should stand ready to
tighten monetary policy further should
inflationary pressures persist. Consistent with
the need to rebuild net international reserves,
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
PAGE 66
exchange rate flexibility should remain an
anchor of the authorities’ economic strategy.
“The banking sector’s high levels of capital
and provisioning continue to provide adequate
buffers against adverse shocks, but continued
close supervision of banks remains critical. In
this regard, capacity building toward risk-
based supervision is welcome. As announced
by the authorities, it is also important to
continue tightening the regulatory framework
as financial sector stability solidifies.”
As for the business climate in the country – it
was hurt by the political uncertainty that
followed the conflict with Russia and the
domestic unrest that followed. That unrest has
now subsided, and the fact that foreign direct
investment has been growing in the course of
2010 attests to that improvement. When it
comes to the legal and institutional business
environment, Georgia is very well placed. 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. The authorities’ structural reform
program is now focusing on improving
government efficiency and transparency, while
continuing the privatization of public sector
assets.
Information obtained from the Exchange.