A cheaper lari stimulated economic activity by encouraging exports, said National Bank of Georgia Governor Koba Gvenetadze, trend.az reported.
Gvenetadze, talking to IMF at the sidelines of the IMF’s Annual Meetings, noted that Georgia was indeed hit by lower demand in the region, driven by lower oil prices in 2014–2016 and geopolitical tensions.
“We responded with a flexible exchange rate, which proved to be a very good way to absorb the shock and to make the economy withstand the difficult times. As a result, lari was depreciated by 34 percent against the US dollar, but the economy continued to grow by 2.9 percent in 2015 and 2.8 percent in 2016. A cheaper lari stimulated economic activity by encouraging exports; incomes grew, which helped debt payers meet their financial obligations,” he said.
He went on to day that after the shock of 2015–16, the financial regulator realized a need to deal more proactively with high dollarization [the ratio of foreign exchange deposits and loans to total deposits and loans] in Georgia.
“It represents a high risk for the most vulnerable groups because the fluctuations of the US dollar against lari immediately affect their finances. Following discussions with the IMF, we put together a 10-point program to reverse this dollarization trend. This long-term project already has some early results; for instance, loan dollarization decreased by 9 percentage points, to 56 percent of total loans in 2017. The drop in household dollarization was even larger, at 12 percentage points. Deposit dollarization has also been declining,” he added.
Gvenetadze noted that the banking system is now resilient and highly transparent.
“All Georgian banks are privately owned, with 85 percent of foreign ownership. The two largest banks of the Georgian banking system are listed at the premium segment of the London Stock Exchange, which sets very high standards for accountability and transparency,” he said.