web_tbilisi-georgia_credit_istock-534560042.jpg
Tbilisi, Georgia. Image ©iStock
The European country has become exposed to the risk of an invasion due to the unpredictability of Russia’s intentions, and the geopolitical history between the nations, Moody’s said in a report today.
In downgrading the nations outlook from stable to negative, the agency said that tensions over the Russian-backed separatist regions of South Ossetia and Abkhazia could open Georgia up to conflict.
The report said: “A crystallisation of these political risks, including a possible expansion of the military conflict to Georgia and a consequent significant and sustained impact on Georgia's economic and fiscal prospects, would weigh on its credit outlook.
“In this scenario, Moody's expects that Georgia would see increased financial support from its bilateral partners and international financial institutions.
“The possibility of such a military conflict, even if small, may itself have negative implications on Georgia's credit profile."
Moody’s affirmed the nations Ba2 rating as Georgia is likely to maintain accommodative monetary policy, to mitigate risks of Covid-19 disruptions and the slowing regional growth from the Ukrainian conflict.
Although it is reliant on external financing, the country's borrowing risks are partially offset by strong relationships with creditors, which provided concessional support to the economy through Covid-19, the report said.
Georgia's current policy approach geared at containing inflation and rebuilding fiscal buffers, will help support economic stability in the wake of the pandemic and Ukraine invasion, Moody’s said.
However, the nation’s credit rating is still exposed to the risk of the Russian conflict, especially if conditions in separatist regions worsens, which could trigger a spill-over into Georgia, the report said.
Moody’s could also downgrade the nations rating if the economic depression in the region impacts on external investment, leading to a deterioration in its financial position.
Earlier this month, the IMF forecast that global GDP growth will slow to 3.6% this year, 0.8 percentage points less than the 4.4% the organisation forecast in January.
