Moody’s: Georgia’s Sovereign Rating Changed to Positive from Stable
Moody’s Investors Service has changed the outlook on Georgia’s Ba3 sovereign rating to positive from stable, stating that the key driver of outlook change is the entering into force in September 2014 of Georgia’s Deep and Comprehensive Free Trade Area (DCFTA) with the EU, which according to Moody’s expects will attract further foreign direct investment (FDI) and bolster the country’s export performance. This should in turn support an improvement in Georgia’s external position over the medium term.
The affirmation of the Ba3 rating reflects the combination of external vulnerability and geopolitical risks in the near term, as well as the volatile nature of the Georgian economy.
Enhanced Economic Prospects Following Introduction of the DCFTA
The key driver of Moody’s decision to change the outlook to positive is the medium-term economic benefits offered by the DCFTA signed with the EU on 27 June 2014. This view reflects (1) the opportunity EU market access represents for Georgian exporters, given the size of EU economies relative to Georgia’s own; and (2) the increase in FDI that the agreement is likely to generate, supported by improvements in Georgia’s economic governance and institutional capacity in recent years.
The EU is one of Georgia’s largest trading partners. In 2013, Georgia’s goods exported to the EU accounted for 21% of total goods exports, whilst FDI from the EU - mostly from the Netherlands, Luxembourg and Germany - accounted for 43% of all FDI over the period 2010-13. The DCFTA is expected to strengthen the role of the EU, both as an export destination and source of investment for Georgia, with sectors such as agriculture playing an important role for exports, while the transport, manufacturing, energy (e.g., hydropower-generated electricity), and financial services sectors are expected to benefit from increases in FDI. From 2010 to 2013, the four sectors received 63% of total Georgian FDI.