Capturing Growth Opportunities
Macroeconomic update
Georgian economy: reforms driven success
Source: GeoStat Source: IMF 1.3% 2.5% 2.6% 3.3% 3.6% 4.0% 4.1% 4.1% 4.8% 6.3% 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% Hu n g a ry Ukr a in e Cze ch Rep u b lic E sto n ia L a tvia P o la n d L it h u a n ia Ru ssia T u rke y Ge o rg ia 924 1,2021,522 1,8632,479 3,159 2,6942,951 3,7114,131 4,267 4,434 3,720 3,431 3,779 4,3294,943 5,788 6,135 6,0306,571 7,287 8,0068,526 9,209 9,566 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 FNominal GDP per capita, US$ GDP per capita, PPP 4.0 5.1 6.4 7.8 10.2 12.8 10.8 11.6 14.4 15.8 16.1 16.5 11.1% 5.9% 9.6% 9.4% 12.6% 2.6% -3.7% 6.2% 7.2% 6.4% 3.3% 4.6% -5% 0% 5% 10% 15% 20% -5 0 5 10 15 20 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4
Nominal GDP, US$ bn Real GDP growth, % change y/y
Trade 17.5% Manufacturing 16.9% Transport & communications 10.4% Public administration 9.9% Agriculture 9.3% Construction 7.1% Real estate 6.0% Healthcare 6.0% Education 5.1% Financial intermediation 3.4% Other 8.3%
GDP: robust growth potential, strong rebound after 2009
Diversified nominal GDP structure, 2014
Average real GDP growth over 2003-14
Rapidly growing per-capita GDP
Georgia’s international ranking - consistently outperforming peers
Source: Heritage Foundation Source: WB 162 85 80 73 70 69 57 54 37 24 22 16 13 12 Ukraine Azerbaijan Italy France Turkey Kazakhstan Romania Hungary Latvia Czech Rep. Georgia Germany UK USA Mostly free Source: PWC
Note: The total tax rate measures the amount of taxes and mandatory contributions payable by the business, expressed as a share of commercial profits 9 10 11 12 13 19 22 31 52 67 70 73 83 87 134 140 Germany USA Georgia Norway Netherlands UK Estonia Poland Czech Rep. Serbia Turkey Montenegro Romania Armenia Russia Azerbaijan
Source: Trace International
83 63 59 55 46 41 37 36 27 24 16 9 8 7 6 Ukraine Azerbaijan Serbia Turkey Montenegro Kazakhstan Romania Czech Rep. France Georgia Estonia Norway Sweden USA UK Regional leader 66.6% 65.4% 48.9% 48.8% 48.5% 43.8% 42.6% 40.1% 39.8% 33.7% 27.0% 23.2% 22.8% 21.0% 16.4% 14.8% 12.8% FranceItaly Russia Germany Czech Rep. USA Lithuania Turkey Azerbaijan UK Bulgaria Cyprus China Canada Georgia UAE Kuwait
Doing business, 2016
Business Bribery Risk, 2014
Georgia’s international ranking – consistently outperforming peers
14.9 17.8 19.7 20.7 26.0 35.6 48.6 49.0 51.9 53.4 53.8 55.3 60.6 65.4 75.5 87.5 89.4 97.1 Ukraine Azerbaijan Russia Moldova Kazakhstan Albania Bulgaria Bosnia & Herz. Serbia Romania Turkey Italy Hungary Czech Rep. Georgia Estonia USA Singapore Ahead of 13 EU members and all 5 candidates up 9.5p y/y 36.5 39.9 40.4 42.3 51.4 51.9 54.3 55.8 57.7 58.2 66.8 67.3 71.6 72.1 80.3 81.3 89.9 100.0Bosnia & Herz. Moldova Ukraine Azerbaijan Russia Albania Kazakhstan Romania Bulgaria Serbia Italy Turkey Georgia Hungary Czech Rep. Estonia USA Singapore Ahead of 4 EU members and all 5 candidates up 2.2p y/y 28.8 36.5 43.8 44.7 49.5 53.8 56.3 60.6 66.3 71.2 71.6 72.6 74.5 79.3 81.3 88.5 93.3 100.0 Ukraine Russia Azerbaijan Kazakhstan Bosnia & Herz. Moldova Serbia Albania Turkey Bulgaria Romania Italy Hungary Georgia Czech Rep. USA Estonia Singapore Ahead of 10 EU members and all 5 candidates
up 5.6p y/y
Source: WB
Note:Reflects perceptions of the quality of public services, of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.
Source: WB
Note: Reflects perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.
Source: WB
Note: Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests.
Source: Transparency International
1% 3% 4% 5% 6% 7% 7% 8% 15% 19% 21% 22% 26% 26% 32% 37% Denmark Norway Georgia UK Estonia Romania USA Bulgaria Czech Rep. Latvia Turkey Greece Lithuania Serbia Kazakhstan Ukraine
% admitting having paid a bribe
WGI, regulatory quality ranking, 2014
WGI, government effectiveness ranking, 2014
Georgia vs. regional economies - absorbing external shocks through flexible exchange rate regime
Source: Bloomberg
Note: US$ per unit of national currency; 9 Nov 2014 - 9 Nov 2015
Source: IMF
Note: From Sep-2014 to Sep-2015; Armenia’s reserves exclude a US$ 500mn Eurobond issued in March 2015
Source: Central banks
Note: Latest data as of 9 November 2015 0% 10% 20% 30% 40% 50% 60% Ge o rg ia T u rke y Ukr a in e Ru ssia B e la ru s M o ldo va A rm e n ia A ze rb a ija n Reserve loss, % 0% 5% 10% 15% 20% 25% 30% A rm e n ia A ze rb a ija n Ge o rg ia T u rke y K a z a kh sta n B e la ru s M o ldo va Ru ssia Ukr a in e End-2014 Latest-2015 46% Annual inflation 0% 5% 10% 15% 20% 25% 30% A ze rb a ija n Ge o rg ia T u rke y A rm e n ia Ru ssia K a z a kh sta n M o ldo va Ukr a in e B e la ru s End-2014 Latest-2015
Monetary policy rate
13.4% 13.7% 25.1% 25.3% 25.6% 26.5% 29.4% 34.8% 38.9%41.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% E u ro A rm e n ia A ze rb a ija n M o ldo va T u rke y Ge o riga Ru ssia Ukr a in e B e la ru s K a z a kh sta n
Weakening against US$
Currency devaluation vs. USD (last 1 year)
National bank reserves change over 1 year
Inflation remained modest in Georgia
Policy rate lower in Georgia vs. peers
Source: National statistics offices
External accounts, US$ mn change y/y
Contributions to imports decline in 9M15
BOP pressure on lari eased since 2Q15 and GEL has stabilized
1.5 1.7 1.9 2.1 2.3 2.5 2.7 Ja n -1 3 F e b -1 3 M a r-1 3 A p r-1 3 M a y-1 3 Ju n -1 3 Ju l-1 3 S e p -1 3 Oc t-1 3 No v-1 3 De c-1 3 Ja n -1 4 F e b -1 4 A p r-1 4 M a y-1 4 Ju n -1 4 Ju l-1 4 A u g -1 4 S e p -1 4 Oc t-1 4 De c-1 4 Ja n -1 5 F e b -1 5 M a r-1 5 A p r-1 5 M a y-1 5 Ju n -1 5 A u g -1 5 S e p -1 5 Oc t-1 5
Dec-Jan deposit dollarization 2Q15 BOP pressure eased Aug-Sep deposit dollarization Source: NBG Source: NBG 1Q15 BOP pressure 55% 60% 65% 70% 75% 80% Ja n -1 1 M a y-1 1 S e p -1 1 Ja n -1 2 M a y-1 2 S e p -1 2 Ja n -1 3 M a y-1 3 S e p -1 3 Ja n -1 4 M a y-1 4 S e p -1 4 Ja n -1 5 M a y-1 5 S e p -1 5 -300 -200 -100 0 100 200 300 400 500 1Q15 2Q15 3Q15 Imports Exports Remittances
Lower imports
Lower exports and remittances Savings from lower imports US$ 879mn (-14% y/y) Loss from lower exports and remittances US$ 801mn Net positive effect US$ 77mn Consumer -10.6% Intermediate -1.8% Investment -1.8% -16% -14% -12% -10% -8% -6% -4% -2% 0%
Constributions to change, y/y
o.w. US$ 192mn saving from oil imports
Source: GeoStat, NBG Source: GeoStat, Galt & Taggart
US$/GEL exchange rate
Deposit dollarization at 68% in September (+7.7ppts
FDI drives current account deficit, mainly through capital goods imports
Source: GeoStat; NBG 0% 2% 4% 6% 8% 10% 12% 14% 16% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 FTourism inflows, US$ mn Tourism inflows to GDP, %
0% 2% 4% 6% 8% 10% 12% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 F
Money transfers, public sec, US$ mn Money transfers, private sec, US$ mn Money transfers to GDP, %
•
Trade Deficit mainly driven by FDI
•
70% of trade deficit is financed by services
exports (mainly tourism, with strong
growth
potential)
and
remittances
(diversified by countries)
Source: GeoStat, NBG, G&T Research
-40% -30% -20% -10% 0% 10% 20% 30% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F Goods, net Services, net Income, net Transfers, net CA deficit net FDI
Tourism revenues on the rise
Trade Deficit
Remittances
Tourism revenues, share to GDP c3x higher over 2005-15
Money transfers, diversified by countries
Current account balance, % of GDP
Key takeaways
Source: GeoStat; NBG
Lower world commodity prices help manage inflationary pressures
Source: NBG, GeoStat
•
Annual inflation picked up starting in 2H15 and was at 5.8% y/y
in October
•
Food, healthcare, alcoholic beverages, and tobacco prices and
one-time increase in electricity tariff have been the main drivers
of price growth, while fuel prices have decreased
•
NBG gradually tightened monetary policy to keep the 5%
inflation target in sight through 6time increase in policy rate
-currently at 7.5%
•
Given current trend in prices, annual inflation expected at 6-6.5%
at end-2015, moving towards 5% target in 2H16
Source: GeoStat, NBG Source: IMF 90 95 100 105 110 115 Ja n -1 3 F e b -1 3 M a r-1 3 A p r-1 3 M a y-1 3 Ju n -1 3 Ju l-1 3 A u g -1 3 S e p -1 3 Oc t-1 3 No v-1 3 De c-1 3 Ja n -1 4 F e b -1 4 M a r-1 4 A p r-1 4 M a y-1 4 Ju n -1 4 Ju l-1 4 A u g -1 4 S e p -1 4 Oc t-1 4 No v-1 4 De c-1 4 Ja n -1 5 F e b -1 5 M a r-1 5 A p r-1 5 M a y-1 5 Ju n -1 5 Ju l-1 5 A u g -1 5 S e p -1 5 Oc t-1 5
REER, Jan 2013=100 NEER, Jan 2013=100
Lari appreciation
Lari depreciation
75 100 125 150 175 200 225 Ja n -1 1 A p r-1 1 Ju l-1 1 No v-1 1 F e b -1 2 M a y-1 2 S e p -1 2 De c-1 2 M a r-1 3 Ju l-1 3 Oc t-1 3 Ja n -1 4 M a y-1 4 A u g -1 4 No v-1 4 M a r-1 5 Ju n -1 5 Oc t-1 5Total Non-energy Energy 8.0% 5.8% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% Ja n -1 1 M a y-1 1 S e p -1 1 Ja n -1 2 M a y-1 2 S e p -1 2 Ja n -1 3 M a y-1 3 S e p -1 3 Ja n -1 4 M a y-1 4 S e p -1 4 Ja n -1 5 M a y-1 5 S e p -1 5
Core (non-food, non-energy) Headline Inflation
Annual CPI Inflation
Key takeaways
Growth drivers in 2015
Source: GeoStat
Note: Rapid estimate for 3Q15
•
Georgian economy grew 2.9% y/y in 1H15 against a backdrop of regional
turbulence
•
Growth base in 1H15 was diversified:
•
Construction +17.4% y/y
•
Financial intermediation +9.8% y/y
•
Hotels and restaurants +8.1% y/y
•
Transport +6.8% y/y
•
Tourism has been resilient. Arrivals increased 6.8% y/y to 5.0mn persons in
10M15, and tourism revenues increased 8.0% y/y to US$ 1.5bn in 9M15
•
Georgia remains attractive place for doing business. FDI up 4.8% to US$
530.0mn in 1H15
•
Number of employed persons increased 12.0% y/y (+60.8 thousand persons) in
2Q15
Source: GeoStat, MOF
-50% 0% 50% 100% 150% 200% -200 0 200 400 600 800 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 2 Q 1 5
FDI, US$ mn % change, y/y
Source: GeoStat -20% -10% 0% 10% 20% 30% 40% 50% 60% 420 440 460 480 500 520 540 560 580 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 2 Q 1 5
Employment in business sector, '000 Pers. income tax revenues, % change y/y
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 Q 1 1 2 Q 1 1 3 Q 1 1 4 Q 1 1 1 Q 1 2 2 Q 1 2 3 Q 1 2 4 Q 1 2 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 2 Q 1 5 3 Q 1 5
Key takeaways
Real GDP growth, y/y
Banking sector: resilient and conservatively managed
•
Conservative capital requirements, prudent oversight of liquidity
and funding risks, and low levels of leverage (loans to GDP ratio
at 44.5% as of 2014) support stability of the financial sector
•
NPLs remain under control at 2.9% in September 2015, down
0.3ppts y/y; Banking sector remains profitable - ROE reached
16.3% in 3Q15, up 0.9ppts y/y
•
Deposit dollarization spiked 1.9ppts m/m to 67.1% in August and
to 68.1% in September, mostly on the back of companies’ FX
holdings on current accounts
Source: IMF Source: NBG Source: NBG 0% 5% 10% 15% 20% 25% T u rke y Ge o rg ia A u s tr ia B e lg ium B e la ru s De n m a rk S lov a kia L a tvia Cze ch Rep . A rm e n ia Ru ssia K o s o vo M a lta L it h u a n ia M a ce d o n ia M o ldo va S lov e n ia Ukr a in e B o s . & He rz. Cr o a tia Hu n g a ry K a z a kh sta n Ro m a n ia 55% 60% 65% 70% 75% 80% 55% 60% 65% 70% 75% 80% Ja n -1 1 M a y-1 1 S e p -1 1 Ja n -1 2 M a y-1 2 S e p -1 2 Ja n -1 3 M a y-1 3 S e p -1 3 Ja n -1 4 M a y-1 4 S e p -1 4 Ja n -1 5 M a y-1 5 S e p -1 5
Deposit dollarization Loan dollarization
0% 1% 2% 3% 4% 5% 6% 1 Q 1 1 2 Q 1 1 3 Q 1 1 4 Q 1 1 1 Q 1 2 2 Q 1 2 3 Q 1 2 4 Q 1 2 1 Q 1 3 2 Q 1 3 3 Q 1 3 4 Q 1 3 1 Q 1 4 2 Q 1 4 3 Q 1 4 4 Q 1 4 1 Q 1 5 2 Q 1 5 3 Q 1 5
Key takeaways
NPLs, country comparisons, 2014
Prudent fiscal framework
+7.9% +47.7% +182.9% -100% -50% 0% 50% 100% 150% 200% Current spending, % change y/y Capital spending, % change y/y Privatization, % change y/y 9M13 9M14 9M15Source: MOF Source: MOF
Source: IMF +6.9% +15.0% +29.0% +5.6% +7.2% -30.4% +4.2% 0 500 1000 1500 2000 2500 3000 VAT Pers. income tax Corp. income tax
Excise tax Property tax Customs duties Other taxes 10M13 10M14 10M15 GEL mn
Source: MOF, GeoStat
-10% -8% -6% -4% -2% 0% 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 E 2 0 1 6 F Fiscal deficit as % of GDP 37% 35% 31% 28% 28% 27% 27% 25% 23% 23% 23% 21% 20% 20% 19% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% No rwa y S e rb ia US UK Ru ssia Ro m a n ia M o n te n e g ro Ge o rg ia Ne th e rla n d s Ge rm a n y A rm e n ia E sto n ia T u rke y P o la n d Cze ch Rep . A ze rb a ija n Tax to GDP ratio
Budget tax revenues posted a strong performance…
… so did capex and privatization, while current expenditure
growth was almost flat in real terms
Deficit at healthy 3.0% of GDP
Although Georgia has one the lowest rates in the world, its tax to
Sustainable public debt ratios - manageable repayment profile
•
Public debt to GDP ratio is capped at 60% by economic
liberty act
•
Public debt ratios have been on the declining path since
2003, and increased slightly in 2009-2010 as a consequence
of global financial crisis
•
Lari depreciation pushed debt to GDP ratio at 43% of GDP in
2015 on the back external public debt, however still well
below the critical level
•
Small portion of budget revenues are devoted to external
debt service, making debt burden manageable
Source: MOF, GeoStat
Source: MOF Domestic 22% Multilateral 54% Bilateral 15% Eurobond 9% Other 78% Weighted average Interest rate 1.9% Contractual maturity 23 years
9.1% 8.7% 7.1% 7.2% 3.4% 2.0% 4.3% 4.4% 4.3% 3.0% 7.9% 7.9% 6.2% 6.7% 0% 2% 4% 6% 8% 10% 12% 14% 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1 2 01 2 2 01 3 2 0 1 4 F 2 0 1 5 F 2 0 1 6 F
Government external debt service as % of budget revenues
Source: MOF 0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70% 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 F 2 0 1 6 F
Total public debt to GDP, % External public debt to GDP, %
Public debt to GDP
Key takeaways
Exposure to partner countries – well diversified
EU 10.8% Russia 6.1% Azerbaijan 5.8% Turkey 5.7% Ukraine 0.4% Other 6.9%35.8% of GDP in 9M15
EU 10.7% Russia 7.9% Turkey 5.0% Azerbaijan 4.8% Ukraine 1.1% Other 4.1%33.6% of GDP in 9M14
Exports, remittances, tourism and FDI inflows, 9M15 vs 9M14
Source: GeoStat, NBG, Galt & Taggart Note: excluding re-exports, FDI as of 1H
Georgian economy: robust growth potential
•
Factors shaping growth outlook of the regional economies in 2016:
•
Lower oil and other commodity prices
•
Tightening of credit conditions in emerging markets
•
Spillovers from Russia’s recession
•
Slowdown in China
•
Geopolitical tensions (Russia-Ukraine)
•
2016 growth expected at 3.5-4% reflecting a gradual improvement in Georgian trading partners economies, low fuel prices, tourism growth
prospects and softening of GEL depreciation related uncertainties
•
Drivers of growth in 2016 and beyond:
•
Diversified economy
•
Business friendly environment
•
Strong institutions
•
Attractive and cheap tourist destination
•
Savings from significantly lower oil import bill (about US$ 300-400mn)
•
Prudent fiscal limits imposed by Economic Liberty Act
•
Potential to establish itself into a regional service hub
•
EU DCFTA and expected surge in FDI; Key investments projects underway:
•
BP’s gas pipeline expansion (US$ 2bn investment over the next 4 years)
•
Nenskra HPP construction by Korean company, K-water (US$ 1bn)
•
Anaklia deep sea port (up to US$ 1 bn)
•
Adhesive building materials factory construction by Henkel’s (Germany)
•
Israel’s ELBIT Cyclone high-tech plant for Boeing and Airbus components (US$ 85mn)
Georgian economy: rapid return to normal growth
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6% Ge o rg ia K yr g yz Rep . K a z a kh sta n L a tvia S lov a k Re p . Ro m a n ia M a ce d o n ia L it h u a n ia M o ldo va E sto n ia A ze rb a ija n A rm e n ia Cze ch Rep . B u lg a ria Ru ssia B e la ru s 2016F 2017FSource: IMF, WEO October 2015
