National Bank of Georgiabgeo.com/uploads/presentations/1100.pdf · Ukraine Russia Serbia Belarus...

National Bank of Georgia

Giorgi Kadagidze

Governor

[email protected]



Georgia At Glance

Area: 69,700 sq km

Population: 4.4 million (2010)

GDP 2010E: US$11.6 billion

GDP per capita 2010E (PPP): US$ 5,057

Average GDP real growth (2000-10): 6%

GDP growth 2010E: 6.5%

Inflation rate 2010 (average): 7.1%

External public debt / GDP 2010: 37.2%

Sovereign ratings: Fitch B+/Stable

S&P B+/Stable/B+

Moody's Ba3/Stable

2


Growth oriented reforms Ease of Doing Business, 2011 (WB-IFC Doing Business Report) Economic Freedom Index, 2010 (Heritage Foundation)

145 123

89 68

66 59

65 56

51 48

54 17

12 8

5 4

UkraineRussiaSerbia

BelarusMontenegro

KazakhstanTurkey

RomaniaBulgariaArmenia

AzerbaijanEstonia

GEORGIANorway

USAUK

162 143

96 82

75 74

67 64 63

51 50

26 16

11 8

UkraineRussia

AzerbaijanKazakhstan

BulgariaItaly

TurkeyFrance

RomaniaHungary

LatviaGEORGIA

EstoniaUK

USA

Up from 112 in 2005

TI 2010 Global Corruption Barometer: % admitting having paid a bribe within the last 12 month

TI 2010 Global Corruption Barometer: % of the surveyed claiming the corruption level has decreased

2% 3% 3% 3% 4% 5% 6% 7% 8% 9% 9%

14% 14%

26% 26%

78%

RomaniaEU+

SpainUnited Kingdom

CanadaItaly

United StatesFrance

LithuaniaLatvia

AustriaCzech Republic

JapanTurkeyPoland

GEORGIA

Georgia ranks 1st in the world in terms of the

(public perception of the) decrease of the level of

corruption

34% 33%

28% 15% 15%

14% 13%

9% 9%

7% 5% 5% 5%

4% 3%

1%

LithuaniaTurkey

RomaniaLatvia

PolandCzech Republic

ItalyJapan

AustriaFrance

EU+Spain

United StatesCanada

GEORGIAUnited Kingdom

3


29,405

18,837

13,392

11,767

16,998

14,331

12,052

5,179 5,057

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Per capita GDP by PPP around 5000 USD Per capita GDP by PPP in 2010

Per capita GDP by PPP

4


Reform Driven Economic Success

GDP

Components of Nominal GDP (9 months 2010)

2,966 3,242

3,644 4,041

4,680 4,907 4,754

5,057 5,324

919 1,188

1,484 1,764

2,315

2,921

2,450 2,591 2,897

0

1,000

2,000

3,000

4,000

5,000

6,000

2003 2004 2005 2006 2007 2008 2009 2010E 2011F

US$

GDP per capita (PPP) Nominal GDP per capita

11.1%

5.9%

9.6%

9.4%

12.3%

2.3% -3.8%

6.5% 4.5-5.5%

5.5% 6.5%

-6%

-3%

0%

3%

6%

9%

12%

15%

-1

1

3

5

7

9

11

13

15

17

2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F

Nominal GDP (US$bln) Real GDP growth, y-o-y (%)

agriculture, 7.2%

Manufacturing &

Construction, 13.8%

trade services, 13.5%

Transport & Communicati

on, 10.5%

Public Ser. and defense,

11.1%

Health care & Education,

10.2%

Others, 33.7%

5


Balance of Payments

2006 2007 2008 2009 2010f 2011f 2012f 2013f

Current Account -1,175 -2,010 -2,912 -1,210 -1,096 -1,349 -1,265 -1,311

Trade Balance -2,019 -2,896 -3,833 -2,399 -2,565 -2,921 -3,008 -3,280

Export of goods 1,667 2,088 2,428 1,894 2,454 2,687 2,772 2,947

Import of goods -3,686 -4,984 -6,261 -4,293 -5,019 -5,608 -5,780 -6,227

Services, net 158 161 21 340 535 678 816 977

Tourism, net 146 208 243 294 471 529 617 703

Factor income, net 162 36 -160 -118 -150 -270 -269 -299

Current transfers, net 524 688 1,060 967 1,085 1,165 1,195 1,291

Capital and Financial Account 1,678 2,422 3,079 1,776 1,323 1,532 1,371 1,197

Capital account 171 128 112 183 201 198 218 222

Foreign direct investment 1,186 1,674 1,494 659 618 741 848 956

Other investments 321 620 1,473 934 504 594 304 19

Public sector -110 -16 890 942 587 282 193 -73

Private sector 432 636 583 -8 -83 312 111 92

Change in Reserves (-decrease) 439 377 131 616 212 184 105 -114

International Reserves 931 1,361 1,480 2,109 2,265 2,449 2,554 2,440

Current Account Deficit (% of GDP) -15.1% -19.8% -22.8% -11.2% -9.4% -10.3% -8.7% -8.0%

6


Balance of Payments

Trade deficit

Services (tourism)

Current Transfers (Remittances)

CA

FDI Other investments

(public sector loans) Increase in reserves

C&F Account

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

PLEDGED $4.5 Billion

(may increase to $5.5 billion)

COMMITTED ~$4.0 Billion

DISBURSED ~$2.0 Billion

7


Tourism Revenues and Remittances

0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Foreign visitors (thousand persons) Tourism reveneus (mln USD)

0

200

400

600

800

1,000

1,200

1,400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Remittances

8


Diversified Trade Structure

• WTO member since

2000

• Simplified customs

regime since August 2006

• No quantitative

restrictions on trade

• EU GSP+ Scheme 2006,

export 7,200 categories

of goods duty-free

• Georgia Turkey FTA was

signed in 2008

• Promising deep &

comprehensive FTA with

the EU and USA

Export Structure* by Country, 2009 Import Structure* by Country, 2009

Export Structure* by Product, 2009 Import Structure* by Product, 2009

Turkey 19.9%

Azerbaijan 14.7%

Canada 10.3% Armenia 7.8%

Ukraine 7.4%

Bulgaria 7.3%

United States 3.3%

Italy 2.1%

Germany 2.0%

Russia 1.9%

Kazakhstan 1.8%

UAE 1.5% Spain 1.3% Other 18.8%

Turkey 18.0%

Ukraine 9.6%

Azerbaijan 8.6%

Germany 6.9%

Russia 6.6%

United States 5.2%

China 4.0%

Bulgaria 3.5%

Italy 2.9%

Romania 2.6%

UAE 2.5%

Netherlands 2.3%

Brazil 1.7% Other 25.6%

Iron & steel 17.4%

Beverages 10.9%

Gems & precious

stones 10.4% Edible fruit

and nuts 7.9%

Vehicles 7.4%

Ores 5.9%

Fertilizers 5.3%

Fuel 3.9%

Live animals 3.0%

Pharmaceuticals 2.2%

Cement 2.1% Oil seeds

2.1% Wood 2.0% Other 19.4%

Fuel 17.6%

Machinery & appliances

8.6% Vehicles 7.8%

Electrical machinery & equipment

6.8%

Pharmaceuticals 4.4%

Plastics 3.0%

Cereals 2.7%

Articles of iron or steel

2.2%

Paper and paperboard

2.0%

Iron and steel 1.9% Furniture

1.8%

Tobacco 1.8% Sugars 1.4%

Meat 1.4%

Other 36.5%

EU – 21% EU – 30%

9


Inflation

Sudan Bangladesh

Egypt

Mauritius Turkey

Uganda Estonia

Poland

Hungary Mexico

Japan Chile Spain

South Africa Greece Belgium

Italy France New Zealand

Luxembourg

Canada Denmark Norway Switzerland

Netherlands UK Germany US

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0 20,000 40,000 60,000 80,000 100,000 120,000

Georgia

-5.0

0.0

5.0

10.0

15.0

Jan

-06

Apr

-06

Jul-

06

Oct

-06

Jan

-07

Apr

-07

Jul-

07

Oct

-07

Jan

-08

Apr

-08

Jul-

08

Oct

-08

Jan

-09

Apr

-09

Jul-

09

Oct

-09

Jan

-10

Apr

-10

Jul-

10

Oct

-10

Jan

-11

Inflation Share of food in inflation

-10%

-5%

0%

5%

10%

15%

20%

Dec

-04

May

-05

Oct

-05

Mar

-06

Au

g-06

Jan

-07

Jun

-07

Nov

-07

Ap

r-08

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Tradable Non-tradable

6.2%

8.8%

11.0%

5.5%

3.0%

11.2%

4.9%

4.6%

9.1%

4.4%

-1.9%

7.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2005 2006 2007 2008 2009 2010

CPI (e-o-p) Core Inflation *

* 2 standard deviation

10


Fiscal Performance

Budget Revenue Performance*

1,6

06

2,5

62

3,3

86

4,6

02

6,1

98

7,6

51

6,7

60

7,5

52

7,4

56

7,8

34

12.0%

15.6% 17.1%

19.2% 21.6%

24.9% 24.5% 23.6% 24.4% 24.0%

0%

10%

20%

30%

-

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F

(GEL mln) Total Budget Receipts (LHS) Tax Revenues as % of GDP (RHS)

Conventional Fiscal Deficit (Cash Basis)**

-2.6% -3.4%

-4.8%

-6.5%

-9.2%

-6.3%

-4.3%

-2.3% 0.0%

-7.3%

-4.8% -4.0%

-2.9%

-10%

-8%

-6%

-4%

-2%

0%2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

Fiscal Deficit as % of GDP - Current Path

*Consolidated Budget ** GFS86 Classification

General Government Expenditures

1,4

46

1,9

77

2,9

93

3,9

47

5,7

19

6,9

20

6,6

70

7,0

84

7,1

26

7,6

35

7,9

40

16.9% 20.1%

25.8% 28.6%

33.7% 36.3% 37.2%

34.6%

31.2% 29.9% 27.5%

-

2,000

4,000

6,000

8,000

10,000

0%

10%

20%

30%

40%

2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F

Expenditures (Capital + Current) Expenditures (Capital + Current) as % of GDP

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Current Revenues/Current Expenditures*

11


Favorable Public Debt Situation Debt Indicators: Below the Prudential Threshholds Eurobond Performance: Incremental and Sustained Improvement

Flat Repayment Profile: Government External Debt Service

4.6% 6.4%

5.1% 6.0%

3.2% 2.3% 4.6% 4.1% 4.1% 2.6%

11.0%

4.1% 3.9% 4.0%

9.1% 8.8% 7.1% 7.3%

3.4% 2.1%

4.7% 5.0% 5.3% 3.9%

19.0%

8.3% 7.5% 7.8%

0%

5%

10%

15%

20%

2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F 2016F

US$ m

ln

as % of Exports as % of Budget Revenues

Eurobond

96.0

63.8

104.6

10.1 19.1

5.3

0

20

40

60

80

100

120

Jul-

08

Au

g-0

8Se

p-0

8O

ct-0

8N

ov-

08

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-0

9M

ay-0

9Ju

n-0

9Ju

l-0

9A

ug-

09

Sep

-09

Oct

-09

No

v-0

9D

ec-0

9Ja

n-1

0Fe

b-1

0M

ar-1

0A

pr-

10

May

-10

Jun

-10

Jul-

10

Au

g-1

0Se

p-1

0O

ct-1

0N

ov-

10

Dec

-10

Jan

-11

Price Yield

32.0% 25.5%

31.2%

41.2% 43.2% 43.7% 41.7% 38.7%

21.1% 16.8%

23.5%

31.8% 34.3% 35.3% 33.5% 30.9%

48.9%

56.8% 60.9%

80.6% 84.5%

78.9% 73.1%

67.8%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010F 2011F 2012F 2013F

US$ b

ln

Public Debt Stock Total Public Debt to GDP (%)

External Public Debt to GDP (%) External Debt to GDP (%)

12


Favorable Public Debt Situation

Affordable Public Debt Stock and Very Low Interest Rate on External Public Debt (in million USD)

Government External Debt Amortization Profile: Flat Trajectory, Easily Affordable Annual Repayment Volumes

External Public Debt by Interest Type: Interest Rate Risk Brought to a Minimum

Portfolio Average

Weighted Interest Rate as

of end-December 2010

2.04%

0

100

200

300

400

500

600

700

800

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

US$

mln

OTHER LOANS IMF EUROBOND

Refinancing limited to 2013, the bulk of Gov’t external debt owed to official development

creditors on concessional terms

Fixed 68%

Variable 32%

Domestic 1,026 21%

Multilateral 57%

Bilateral 12%

Eurobond 10%

External 3,937 79%

13


Debt Sustainability

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Government debt to GDP

Baseline Threshold

0%

5%

10%

15%

20%

25%

30%

35%

40%

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

2021

202

2

202

3

202

4

202

5

202

6

2027

202

8

202

9

203

0

Government debt service to revenues and grants

Baseline Threshold

14


Monetary policy

Price stability is a main goal of

the NBG

NBG started soft inflation

targeting from 2009

Inflation target – 6% annual

Last three year cumulative

inflation, lowest in region.

4

5

6

7

8

9

10

11

12

13

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Monetary Policy Rate (2008-2011)

-10

0

10

20

30

40

50

60

19951996199719981999200020012002200320042005200620072008200920102011201220132014

CPI Inflation (% -YoY)

15


FX Market

Introduction of FX auctions in 2009

Flexible exchange rate regime

Less need for interventions

50

70

90

110

130

150

170

Jan-

00

Sep-

00

May

-01

Jan-

02

Sep-

02

May

-03

Jan-

04

Sep-

04

May

-05

Jan-

06

Sep-

06

May

-07

Jan-

08

Sep-

08

May

-09

Jan-

10

Sep-

10

Dynamics of Effective Exchange Rate

Real Nominal

0.0000

0.0050

0.0100

0.0150

0.0200

0.0250

0.0300

14-Jan-05 14-Jan-06 14-Jan-07 14-Jan-08 14-Jan-09 14-Jan-10 14-Jan-11

5 days standart deviation of USD/GEL exchange rate

0

50

100

150

200

250

Jan-

07

Apr

-07

Jul-

07

Oct

-07

Jan

-08

Apr

-08

Jul-

08

Oct

-08

Jan

-09

Apr

-09

Jul-

09

Oct

-09

Jan

-10

Apr

-10

Jul-

10

Oct

-10

NBG FX Interventions

Purchase of USD Sell of USD

16


Domestic Debt Market

6 Months T-Bills Discount Rates

T-Notes Coupon Rates

12 Months T-Bills Discount Rates

Cumulative Issuance by Instrument

8.5%

5.2%

7.7%

6.0%

12.0%

14.6%

12.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Dis

coun

t R

ate

12 Months T-bills

10.2% 10.3%

14.3%

15.6%

14.4%

13.8%

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

Cou

pon

Rat

e

T-Notes

0

0

10

25

85

12

5

14

5

10

80

13

0 22

0

28

0

30

0

31

0

70

19

0 27

5

34

2

37

7

40

7

42

3

0

100

200

300

400

500

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Nov-10 Dec-10

GE

L m

ln

T-Notes 12M T-Bills 6M T-Bills

4.1%

6.9%

4.5%

9.3%

11.4%

10.0%

0%

2%

4%

6%

8%

10%

12%

14%

Dis

coun

t R

ate

6 Months T-bills

17


Gross International Reserves

2010 2011 2012 2013 2014 2015 2016

GIR in percent of

Wijnholds and Kapteyn threshold 129 126 94 120 122 140 127

Lipschitz, Messmacher, and Mourmouras threshold 63 67 54 61 60 67 63

IMF composite indicator 239 251 207 215 209 231 219

Jeanne and Rancierre model 119 117 89 112 116 135 126

Obstfeld, Shambaugh, and Taylor model 98 105 92 85 81 85 85

Memorandum items (in $ million):

Gross international reserves 2,263 2,780 2,590 2,488 2,462 2,730 2,902

Sources: Georgian authorities; and staff estimates.

Georgia: Medium-Term Reserve Adequacy

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Forecast of Current Account Deficit

18


40 million inhabitants, In 500 km radius area

2010 – car export USD 227 mln.

Potential for Regional Logistics center

19


Regional Energy Hub

LNG across Black Sea – Azerbaijan-Georgia-Romania Interconnection (AGRI) project initiated by three states together with NABUCCO/White Stream – huge potential to transport gas from the Caspian to Europe

The only country in the region (which doesn’t have its own gas resource) that was not effected by gas crises in January 2009

Georgia/Romania MoU for transportation of carbon resources from Caspian via Black Sea

AGRI

Reliable transit country and regional energy hub

– Baku-Tbilisi-Ceyhan (BTC) oil pipeline

– Baku-Supsa oil pipeline

– South-Caucasus gas pipeline (SCP) from Shah-Deniz

– North-South Gas pipeline

– Georgia-Azerbaijan Southern Gas (GASP)

Gas supply contracts with Azerbaijan for 10 years and with Shah Deniz for 20 years

Transit role for oil & gas – pipelines and railway

– Circa 1.6% of world oil production

20


Electricity Export Capacity

-1.5

-1

-0.5

0

0.5

1

1.5

2004 2005 2006 2007 2008 2009 2010

tw/h

Ne

t Ex

po

rts

• Growing consumption on the Turkish electricity

market expandable to Iraq, Syria and EU countries

• Net electricity exporter since 2007

• Net exports for 2010 (1 TWH), double by 2013 (2

TWH)

• New hydro projects, potential export cap. 6 TWH,

$300 million by 2018.

• Construction of 500 and 154 KV power transmission

line to Turkey

• Additional new 500 KV interconnection to Turkey is

under negotiation

• Huge untapped hydro resources, only 18% of hydro

potential utilized so far

• Once all three electricity lines are operational, total

transmission capacity to Turkey will reach more than

2000 MW - 15 times more than current capacity

21


Comparison with Other Countries

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Kaz

akhs

tan

Hun

gary

Lat

via

Mon

tene

gro

Rom

ania

Lit

huan

ia

Bos

nia

and

Her

zego

vina

Alb

ania

Mac

edon

ia,

FYR

Bul

gari

a

Rus

sia

Tur

key

Bel

aru

s

Ukr

aine

Cro

atia

Serb

ia

Est

onia

Geo

rgia

Arm

enia

Mol

dov

a

Capital Adequacy (%)

0.0

20.0

40.0

60.0

80.0

Geo

rgia

Arm

enia

Lat

via

Tur

key

Mol

dov

a

Rus

sia

Ukr

aine

Lit

huan

ia

Hun

gary

Mac

edon

ia,

FYR

Bos

nia

and

Her

zego

vina

Bul

gari

a

Rom

ania

Bel

aru

s

Serb

ia

Cro

atia

Est

onia

Deposits to GDP (%)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Arm

enia

Bel

aru

s

Geo

rgia

Serb

ia

Mol

dov

a

Mac

edon

ia,

FYR

Rus

sia

Tur

key

Bos

nia

and…

Cro

atia

Hun

gary

Rom

ania

Lit

huan

ia

Ukr

aine

Bul

gari

a

Lat

via

Est

onia

Loans to GDP (%)

0%

20%

40%

60%

80%

100%

120%

140%

160%

Bank Assets to GDP (%)

22


Ensuring No Policy Drift

Fiscal responsibility

Government expenditure capped at 30% of GDP

Budget deficit capped at 3% of GDP

Government debt capped at 60% of GDP

No budget earmarks

Since 1995, no restrictions on currency convertibility or repatriation of capital & profit

Ban on state ownership of banks and on the imposition of price controls

No state-owned banks since 1995 and no price controls since the early 1990s

Ban on an increase in the number of licenses and permits

Ban on an increase in the number of state or independent regulators

Currently, independent regulators exist only in financial services, communications and utilities

Means-tested assistance rendered through vouchers and other ways that empower citizens and give them

choice (in healthcare, education, etc), rather than by funding directly state-owned service providers

Deviation from these thresholds would be possible under the negative GDP growth conditions, but the Government would be required to develop a plan aimed at reverting these ratios within three years from the breach

23


Thank you for your Attention!

www.nbg.gov.ge

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