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Economic Factors Contribute to the Lari’s Rise

Economic Factors Contribute to the Lari’s Rise

After November 2014 the rate of the national currency fell by almost 35% – at this stage it is possible to argue how great is an imbalance between currency spending and earnings, how adequate is the current rate of the lari, but the fact of imbalance does not cause doubts.

What is the state of the factors contributing to the devaluation today, whether they continue deteriorating, or on the contrary, they are becoming more positive? A decline in exports began at the end of the summer, but at the first stage it was associated with a reduction in re-exports (for example, cars to Azerbaijan), and later the reduction of actual exports to post-Soviet countries, which occupies a considerable share of the export geography of Georgia.

Thus, the export revenues have declined, while imports remained at the same level that caused an imbalance. In January-April 2015 the foreign trade turnover amounted to $ 3 bln, which is 13% less than in the same period of 2014. Of this amount, exports account for 689 million (down 26%), import – 2. 3 billion ( down 8%).

A decline in imports by 8% means that $ 200 million less came out of the country than usually, which in theory should have a positive impact on the lari’s rate. In addition, imports decreases every month – if in January the figure was 0. 8%, in February – 3.6%, in March- 5%, and in April – nearly 20%. This means that amid lowering foreign exchange earnings from exports, the outflow of the currency has also reduced, which should contribute to stabilizing the lari.

A certain imbalance is observed in relation to tourism. In the last months of 2014 a decrease in the number of visitors was recorded, the picture was the same in the first quarter of 2015, but in April a slight increase was observed. It can be assumed that in May the number of visitors will increase as an influx of foreign citizens in the tourist zones is being recorded, in addition, Tbilisi hosted the EBRD’s annual meeting, which was attended by several thousands of foreign dignitaries.

Apart from that, the 2015 European Youth Olympic Games will be held in Tbilisi in the summer, which will increase the number of visitors. Remittances from abroad is an important factor determining the lari’s value. In this respect, the problems began at the end of the year, mainly due to developments in Russia where incomes of the population have plummeted.

Recently, however, a decline in remittances has halted, although growth is not observed. Thus, this factor cannot influence the further devaluation of the national currency. Internal factors also can have an impact on the national currency value, but they do not currently pose a threat – the money supply has not grown in the country as well as the budget pressure. Thus, the common trends and factors at this stage do not play to the depreciation of the national currency, as they either improved or didn’t get worse.