Georgia’s Macroeconomic and Financial Policy
The macroeconomic environment in the country, the completed and ongoing reforms – Irakli Kovzanadze, head of the Parliament’s finance and budget committee discussed these issues on the Business Partner TV Program.
Positive macroeconomic achievements reflected in the recent IMF report will definitely attract the interest of investors. This is a genuinely positive message sent by the International Monetary Fund (IMF) to potential investors, Irakli Kovzanadze noted, and added that the IMF has also recommended that the authorities reduce inflation to the target rate (3%) by the end of 2020.
“The IMF report positively appraises current developments in Georgia. This is a good and important message to potential investors, who are interested in making investments in Georgia. The country has increased exports over the past few years. Furthermore, obstacles in the tourism industry were overcome at the end of 2019. We have good indicators in terms of money transfers, and our compatriots remit more than 1.5 billion USD a year. Crediting indicators have also improved”, Kovzanadze noted.
As for a higher-than-targeted inflation rate registered at the end of 2019 hitting an annual 7%, the National Bank of Georgia (NBG) was too delayed to have provided a timely reaction. Anyway, the NBG has carried out the right monetary policy afterwards, Irakli Kovzanadze noted.
“Last year, I noted that the central bank could take decisions earlier. Nevertheless, I agree with all the following decisions that the NBG has taken in the aftermath. In September, the Central Bank started carrying out an expansive monetary policy, and raised the monetary policy rate several times. Finally, the rate was at 9%. Therefore, these measures have also influenced the GEL’s exchange rate; currency interventions were also carried out in a timely manner, and the 30% indicator decreased to 25% on foreign currency denominated deposits. This move enables commercial banks to save about 700 million USD from the corresponding accounts and therefore, crediting volumes increased. To some extent, pressure on the currency market also declined, and the exchange rate also started stabilizing and the volume of credit rose. Higher crediting volumes came as one of the key preconditions for improving economic growth indicators”, Kovzanadze said.
It has not been ruled out that the NBG slightly simplified banking regulations introduced for curbing excessive indebtedness, however, not at the expense of regenerating excessive debts again, because, sometimes, our citizens had to sell their own houses, Kovzanadze noted.
“We had a problem where some category of our citizens used to take many more loans than they could pay off. There were a lot of examples, when people had to sell their houses. Therefore, I think nobody will agree to revise the coefficients and formulas, because people should take loans when they are solvent. All loans should be supported by solvent borrowers. At the same time, we should demonstrate a certain flexibility in regulations, but it will never happen that insolvent clients take loans”, Kovzanadze said,
As for the reforms carried out by the finance and budget committee and the planned reforms, Kovzanadze listed deposit insurance as one of the successful reforms. This insurance project was launched in 2018, and today it applies to 5,000 GEL deposits. The total amount of the insured deposits exceeds 2 billion GEL, however, we expect the figure to triple in 2020, he noted.
In the second half of 2020 the amount of insurable deposits will rise to 15,000 GEL from 5,000 GEL, he added.
“The Georgian banking sector has already insured deposits of more than 2 billion GEL. At this stage, deposits of 5,000 GEL are insured, while the figure will rise to 15,000 GEL in the second half of 2020”, Irakli Kovzanadze told Business Partner.