Credit Rating Agency Gives ‘Positive Outlook’ on Georgia

Credit rating agency Standard and Poor’s has assigned ‘B+’ long-term and ‘B’ short-term sovereign credit ratings to Georgia and said on December 6 that “the outlook is positive.”

Georgian Prime Minister Zurab Nogaideli hailed Georgia’s first-ever international credit rating at a government session on December 7.

Standard & Poor’s credit analyst Luc Marchand said in a statement issued on by the credit rating agency that the ratings on Georgia “are supported by the government’s strong political commitment to prudent financial policies and market-oriented structural reforms.”

But analyst added that the ratings are “constrained by weak external liquidity, still-high inflation, and substantial infrastructure development needs, in the context of a poor institutional framework and political uncertainty arising from regional conflicts.”

According to the Standard and Poor’s a short-term obligation rated ‘B’ is regarded as having significant speculative characteristics; in this grade the obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties that could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

Georgia’s efforts to increase government revenues by reducing corruption and the shadow economy are expected to support moderate fiscal deficits of about 2.0%-3.5% of GDP in 2006-2008. The net general government debt burden will decline to an expected 32.0% of GDP in 2006 and 28.4% in 2008, compared with a level of 61.0% in 2002, and a 2005 median for ‘B’ rated sovereigns of 60.6%, according to the Standard and Poor’s.

The agency also said that the ratings are also constrained by the regional conflicts that may endanger the pace of reform or decrease investor interest in the region.

Standard and Poor’s also that it expects inflation to stabilize at a comparatively high level, while the central bank has limited independence and “lacks market instruments to counter transition-linked spikes in price pressures.”

“An upgrade [in the ratings] is likely if the government continues to adhere to prudent policies and successfully manages potential setbacks in the regional political environment… Other developments supporting improved creditworthiness include continued success in the privatization process, the effective restructuring of the energy sector, and better transparency in the government’s accounts,” the agency’s analyst Luc Marchand said.

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