The report "Financial Soundness Indicators for Sector Stability in Georgia" provides an overview of the health of the Georgian financial sector and the key challenges it faces. Over the medium term, to increase domestic savings, reduce borrowing cost, and improve the credit risk, the report recommends facilitating property registration, improving the credit information-sharing mechanism, ensuring the security of bank deposits, and legislating improvements in reporting standards for firms. In the long term, the government needs to pay particular attention to diversifying its industrial base, setting clear development goals to encourage banks to finance innovation, and creating a solid legal base for developing capital markets as an alternative source of firms’ financing. Some financial sector problems, such as low domestic savings, may not be fixed easily, since they would require reducing the inequality in income and wealth. The government’s economic strategies aimed at job creation and inclusive growth are part of the long-term solution.
To assess the investment climate in Georgia, a survey was conducted among large private firms and commercial banks. The survey focused on investment climate constraints, financing, business-government relationship, capacity innovation and learning, and labor relations. The bank survey questionnaire focused on constraints on investments faced by bank clients and obstacles to issuing loans. Among others, the main results show moderate-to-severe constraints in terms of the quality of labor (ability to find skilled workers), cost of financing, access to financing, economic and regulatory policies, macroeconomic instability, tax rates, and labor costs. On the bank survey, the limiting factors to doing bank business are the largest source of uncertainty regarding the regulatory environment, property rights, and access to finance. At the same time, banks reveal that inadequate human capital and instability of income are other types of constraints, which are more limiting than collateral when financing the loans.
The results of this study can be used to strengthen the institutional and statistical capacities of Georgia to routinely collect, compile, analyze, and disseminate internationally comparable FSIs that will help improve the country’s financial surveillance, investment climate assessment, and policymaking process in the financial sector. This is critical for increased financial sector stability and performance.
To assist its developing member countries with their FSIs, ADB launched a capacity development technical assistance project to support the participating countries of Bangladesh, Georgia, and Vietnam in strengthening their institutional capacity to compile and analyze internationally comparable FSIs. The study of Financial Soundness Indicators for Financial Sector Stability in Georgia has been implemented by the ISET Policy institute.