International rating agency Fitch has revised the outlook for Georgia’s long-term foreign currency Issuer Default Rating (IDR) from “stable” to “positive”, affirming the rating at “BB”, Fitch said in a statement.

The short-term IDR in foreign currency is affirmed at ‘B’, the country ceiling at ‘BBB-‘.

“The positive outlook partly reflects very strong GDP growth (estimated at 10.3% in 2022 vs. 10.4% in 2021, according to Fitch), rising international reserves and good fiscal execution, driven by a rebound in tourism, as well as strong migrant and capital inflows from Russia, a significant portion of which Fitch expects to continue.”

Domestic demand in the economy last year was boosted by migrant inflows and a surge in transportation, while tourism revenues rose to pre-pandemic levels. Fitch forecasts GDP growth to slow to 4.5% in 2023 due to weaker support from capital inflows from Russia and weaker external demand, returning to just above 5% in 2024 – well above the projected median for ‘BB’ rated economies of 3.2%.

Strong capital inflows and a narrowing balance of payments current account deficit have led to a 13% appreciation of the lari against the US dollar over the past year and an increase in international reserves by $0.6 billion to $4.9 billion at end-December 2022.

The current account deficit narrowed to 4% of GDP last year. Fitch forecasts the current account deficit to widen to an average of 6.8% in 2023-2024, partly reflecting a limited change in migration trends, and international reserves to 3.3 months of current external payments by end-2024, up from 3.2 months at end-2022.

Inflation fell to 9.8% in December 2022 from 13.3% in May, but is still well above the National Bank of Georgia’s target of 3%. Fitch expects inflation to fall to 5.2% at end-2023 due to base-comparison effects, a stronger national currency, lower global commodity prices and as demand normalizes (given that the peak of immigration inflows to Georgia has passed), and to 3.9% at end-2024.