Note: ReforMeter has conducted capital market development reform assessment twice: Phase I - July 2023 and Phase II - January 2024.

ABOUT THE CAPITAL MARKET DEVELOPMENT REFORM

The assessment of the progress in capital market development reform is based on the implementation of the initiatives outlined in the 2023-2028 strategy for capital market development. The objective of this strategy is to enhance access to finance through capital market instruments and to stimulate and mobilize capital for the Georgian market. The strategic vision aims for Georgia to position itself as the leading capital market in the region by 2028.

The 2023-2028 Strategy for Capital Market Development was developed with the active engagement of key stakeholders, including the Ministry of Economy and Sustainable Development of Georgia, the Ministry of Finance of Georgia, the National Bank of Georgia, representatives from the private sector, and experts from the Asian Development Bank. Additionally, the LEPL Insurance State Supervision Service of Georgia and the LEPL Pension Agency are also involved in the implementation of the reform.

According to the strategy, the primary challenge faced by the capital market in Georgia is its underdeveloped state. It is essential to emphasize that the growth potential of the capital market is notably constrained by the current size of the economy and the financial standing of the corporate sector. At present, the market suffers from deficiencies in both the issuance of financial instruments on the supply side and the participation of investors from the demand side.

In recent years, substantial measures have been taken to support the development of the capital market in Georgia. Initiatives, including the adoption of a new legal framework for investment funds and the introduction of both mandatory and voluntary pension scheme frameworks, along with other measures, have been implemented to facilitate the mobilization of long-term local capital.

Despite these initiatives, it is noteworthy that the local institutional investor base remains constrained and lacks diversification. The limited participation of investors presents a significant challenge in effectively mobilizing financial resources to promote economic growth. The dominance of commercial banks results in a concentrated investor base, limiting the variety of financial instruments accessible on the market. Thus, it is crucial to broaden and diversify the pool of institutional investors and enhance their engagement in the capital market.

Given the challenges associated with developing an institutional investor base, it is evident that reflecting on the outcomes of adopting the legislative framework for investment funds is a crucial aspect of assessing the progress of the reform. Furthermore, in consideration of the results from the government survey, another significant subject covers the recently adopted law on voluntary pension schemes.