An individual living in Kutaisi took a 1500 USD real estate secured loan from one of the microfinance institutions in 2011 and had to pay 75 USD interest rate for the following 6 months. The purpose of taking this loan was to finance treatment of her child. She was unable to cover monthly payments and prolonged the term to 10 month, but failed to cover this payments again and was fined several times.

The tradition – and, in most cases, the only way – for Georgian entrepreneurs to finance their businesses and ideas is bank lending, so-called debt financing. However, this source of financing is very limited for start-ups and early-stage businesses, due to the high level of risk involved, the unavailability of collateral assets, and high loan interest rates, which are almost unaffordable for companies that do not generate sufficient returns yet.

Furthermore, high dollarization makes depreciation a dangerous process for the financial sector, as many people with loans or debts in US dollars are unable to pay. In addition, high and persistent dollarization constrains the effectiveness of the monetary policy, as the transmission of the monetary policy to the market interest rates and real variables are rather limited.

The Debt Management Specialist’s initial focus was an assessment of the public debt management legal environment, institutional coordination and arrangements, public debt management initiatives and capacity, public debt portfolio composition, and macroeconomic condition in Georgia. This report provides a general overview of these fore mentioned components.

The aim of the project was developing a medium-term debt management strategy (MTDS) and looking into institutional arrangements, debt monitoring and forecasting practices, analytical capacity in external and domestic borrowing, preliminary fiscal transparency evaluation, and improve communication with domestic stakeholders in cooperation with the Ministry of Finance's Public Debt and External Financing Department (PDEFD) and with other relevant stakeholders.