2016-11-15
Government of Georgia has numerously made statements on the floating exchange rate of the national currency, which fluctuates on the grounds of domestic and external macroeconomic factors and expectations.
Temporary variation of the exchange rate is caused by the following key factors:
1. Significant depreciation of national currencies in the neighboring trade partner countries;
2. Increased outflow of foreign currency conditioned by the import volumes in recent months, which failed to re-balance against exports due to the declining prices at the export markets;
3. Negative expectations towards the exchange rate of GEL, sadly resulting from the attempted speculations made by various groups.
In addition, it is worth noting that consumer price index (CPI) is not increasing in parallel with the above-listed factors. Moreover, National Statistics Office - GEOSTAT - has reported declining prices in recent months.
The most pressing problem faced by the population of Georgia in real sense is based on the excessive dollarization of the loan portfolio. Therefore, Government (GOG) and National Bank of Georgia (NBG) plan to carry out series of combined measures through consultations with the International Monetary Fund (IMF). Such measures include the following:
1. Key focus will be made on the acceleration of economic growth in the State Budget of the following year, thus increasing the portfolio of infrastructure projects. In addition, administrative expenditures will be reduced significantly and State Budget for 2017 will be aimed at strengthening the stable and sustainable fiscal environment. Similar approach will apply to the State Budgets of the following years;
2. Joint Action Plan will be announced in the coming days and it will inter alia entail specific steps towards a gradual reduction of the dollarization rate on the grounds of market economy principles.
As a result, economic growth will be accelerated both in short and long-term perspective. Population of the country at large will no longer be dependent on the short-term fluctuation of the exchange rate led by negative externalities and economic environment will become substantially healthier within the country.
We are confident that measures included in the plan will also lead to positive expectations and stability of the exchange rate.