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Investing.com -- Moody’s Ratings has shifted the outlook for Georgia’s government credit ratings from stable to negative, while simultaneously affirming the local and foreign currency long-term issuer ratings and foreign currency senior unsecured rating at Ba2. The decision to alter the outlook to negative is due to increasing risks to Georgia’s institutional and governance strength, set against a backdrop of mounting domestic and geopolitical trade-offs.
The negative outlook is a reflection of the risks of further weakening of institutional and governance strength due to a range of factors. The "Law on Transparency of Foreign Influence" passed in May 2024 and the stalled EU accession bid have created uncertainty around the continuity of past reforms. The ongoing suspension of Georgia’s IMF program has raised questions related to central bank governance, which has already weakened the institutions and governance strength, and risks undermining the effectiveness of monetary and macroeconomic policy.
Political risks in Georgia are also elevated. Recent policies and positions from the ruling Georgia Dream party may reduce the risk of aggressive Russian interference, but they are likely to increase domestic political risk as a large fraction of the population supports greater integration with the European Union. This could intensify social polarization, which has already been aggravated by intense protest movements following the disputed parliamentary elections in October 2024 and the stalled EU accession bid.
Geopolitical risks are also on the rise, which could amplify domestic political volatility. Recent developments signal an increased risk of US disengagement from European security and NATO, which could create conditions for more intense Russian interventions. Georgia is particularly vulnerable to these risks due to its border with Russia, and the ongoing tensions over South Ossetia and Abkhazia. The unpredictability of Russia’s strategic intentions in the region has increased the risk of Georgia being involved in military conflict.
Despite these challenges, Georgia’s Ba2 ratings have been affirmed, reflecting its strong economic and fiscal position. Georgia’s economic growth is expected to remain strong. The nation’s fiscal strength has improved significantly over 2021-2023, and this improved position is expected to continue over the next few years, with a moderate government debt burden and strong debt affordability. Georgia’s continued cooperation with development partners like the World Bank provides some support to its economic and fiscal resilience.
Georgia’s local- and foreign-currency country ceilings remain unchanged at Baa1 and Baa3, respectively. The four-notch gap between the local currency ceiling and the sovereign rating reflects a relatively small government footprint in the economy and strong institutions which are predictable and reliable in terms of policy action, despite a relatively high current account deficit and ongoing domestic political risks. The two-notch gap between the foreign currency ceiling and the local currency ceiling incorporates Georgia’s external vulnerabilities including a relatively high current account deficit and still high levels of dollarization in the economy.
Georgia’s economic and fiscal position are strong, and have remained resilient to evolving political developments. Georgia’s real GDP growth was very strong in 2022 and 2023, and growth is expected to remain solid. The economy expanded by 9.4% in 2024, and GDP growth is projected to ease to about 6% in 2025, still above-trend, due to moderating labour and financial inflows from a high base.
Government debt burden has declined from a recent cycle peak of 59.6% of GDP in 2020 to 38.9% in 2023 and 36.1% in 2024, due to high nominal growth and sustained fiscal discipline. The government debt burden is expected to remain stable at around 35-36% of GDP over 2025 to 2026. Government debt affordability has remained strong, with government interest payments amounting to about 5% of government revenue in 2023, and this level is expected to remain stable for the next two to three years.
Despite Georgia’s low levels of domestic savings fostering a reliance on external financing, which makes the economy vulnerable to a tightening in external financing conditions, this is partly mitigated by Georgia’s ability to consistently access concessional financing from development partners. Georgia’s banking sector’s performance has been sustained, with strong profitability, good capital and liquidity providing buffers to shocks.
Georgia’s Credit Impact Score reflects its exposure to demographic and employment challenges and, to a lesser extent, environmental risks. However, these risks are mitigated by Georgia’s institutional and governance strengths which have contributed to ongoing increases in incomes and support a capacity to respond to social and environmental challenges. Georgia’s issuer profile scores for environmental risks, social risk, and governance risk also reflect these assessments.
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