In the case of the fundamental resolution of a problem with the Georgian lari, we, in principle, can return it to the previous rate. George Kadagidze , President of the National Bank of Georgia said in an interview with the Russian edition Vlast.
The fundamental solution to this problem is to increase our income. We must really raise our earnings through exports, tourism and investment. More earn, live better. And if that happens, we will basically go back to the previous rate of the national currency Kadagidze notes.
Speaking about the reasons for the depreciation of the lari, NBG President says that Georgia’s economy annually consumes about $ 8.5 billion of imports the central bank has to fund every year. Funding comes in four different ways. $ 4 billion falls on export. That is our trade deficit amounts to $ 4.5 billion. It is financed as follows: $ 1.6 billion – tourism; $ 1.4 billion – money orders from citizens working abroad; and the remaining $ 1.5 billion – direct investments. That is, if we manage to raise $ 1.5 billion of direct investment in the year, this means that our balance of payments is balanced, and there is no pressure on the exchange rate.
And what happened this year? Exports fell by 25%, remittances fell by 25-30%, and income from tourism and investment has not covered these losses. This often happens in the history of economics and is called a classic payment balance shock. The reason for a decline in exports is clear – the regional situation in Russia and Ukraine. Remittances fell because of the situation in Russia and Greece (Greece is the second country in the volume of transfers to Georgia).
Of course, one of the main problems of the Georgian economy is its too big dollarization.
When asked about the authorities’ accusations that NBG President is “protege” of the previous government intentionally did not spend national reserves to drop the lari and hurt the current government, Kadagidze responded that the most popular and the wrongest method is to demand from the Central Bank to intervene and spend its reserves. It is very inefficient, which confirms not only long-term world economic history but also an example of the neighbors – even those countries that are much wealthier than Georgia because of revenues from energy exports have still devalued after the multi-billion interventions. Because when it comes to the fundamental imbalance, spending reserves is a big nonsense.
“Georgia is not stifled by debts, we have no problems in terms of the regulations, we have good indicators of the business climate, taxes, high anti-corruption index. We have all the conditions required for the development of the country, so we would have a small economic growth of about 3% by the end of the year. Inflation will be around 5%. That is, from a macroeconomic point of view, we are fine, but we need to work very hard to attract investment, create jobs, increase economic productivity. And if we manage to repeat in the next ten years the success we had in the last 15 years, we’ll get the classic success story – when a poor country has become a country with average economy in 20 years.
But it is certainly possible if a low level of corruption, economic freedom, low taxes maintain. Then the quality of life will gradually improve” Kadagidze concludes.