Macro-economic Challenges in Georgia and the Strengths and Weaknesses of its Emerging Capital Markets
Monday, 16 May, 2016

On May 13, 2016, ISET hosted the head of the IMF in Georgia, Azim Sadikov, who delivered a lecture for participants of ISET’s Finance Course for Professionals. The subject of his lecture was “Macro-economic challenges in Georgia and the strengths and weaknesses of its emerging capital markets”.

During his presentation, Mr. Sadikov discussed existing macroeconomic challenges for Georgia. He emphasized the current account deficit as the most important problem for the Georgian economy, which resulted in one of the highest net foreign liabilities to GDP ratios (136%) in Central and Western Asia. In order to finance this deficit, Georgia borrows from abroad, increasing the NFL of the country. The good news, however, is that this NFL is made up of FDI, which is considered to be a very stable source of funding. Mr. Sadikov then highlighted the importance of FDI in productive labor-intensive sectors, which will ensure production growth and accumulation of incomes from these investments in Georgia.

Mr. Sadkiov does not consider exchange rate fluctuations as a problem for Georgia: “What depreciation? Yes, the lari lost a lot against the dollar, but Georgia does not trade with the USA a lot. The real effective exchange rate matters more and that did not depreciate.” However, the high dollarization rate of the economy, named by Mr. Sadikov as the second biggest problem for the Georgian economy, led to an increased debt burden of households and businesses on average by 30%, and the share of NPL loans in total loans did not increase. General government debts to GDP ratio also increased to 43% due to this valuation effect, but Mr. Sadikov said that “IMF does not consider the current level of public debt as a problem”. At the end of his presentation, the head of the IMF in Georgia mentioned education as a priority for structural reforms; “the low quality of the national workforce is the crucial obstacle for business,” he said.

ISETl would like to thank Mr. Azim Sadikov for providing an interesting and comprehensive presentation to the ISET community.