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The Point the GEL will Stop at…

All GEL-devaluating Factors have either Improved or Unchanged

The GEL exchange rate against USD has dropped by about 35% since November 2014. The degree of growth in misbalance between the currency inflows and outflows is another issue, but no one refuses the misbalance has grown.
It is interesting what is the situation with factors and parameters that have provoked the GEL devaluation process.
First of all, we should name money transfers and exports, as one of the basic factors of foreign currency.
Exports contraction started at the end of summer 2014. However, the difference between the year of 2014 and the first quarter of 2015 consists in the fact the last year’s contraction in exports was driven by a decline in re-exports, while this factor worsened by the deteriorated economic situation on the CIS markets that holds a significant ratio on Georgia’s exports market.
In terms of currency inflows, it would not be expedient to make focus on re-exports (currency outflow was recorded, but not return).
Thus, the decline in exports has resulted in downturn in currency inflows, while even if the imports grows, the misbalance increases between the outflow and inflow and this factor negatively affect the exchange rate. But in this case, the negative impact of the imports on the exchange rate decreases every month. Since January all months have recorded an intensified decline in imports.
Georgia’s foreign trade turnover in January to April 2015 marked 3 billion USD, down 13% compared to the previous report. Therefore, the exports marked 689 million USD, down 26% and the imports constituted 2.3 billion USD (down 8%).
An 8% contraction in imports signifies the currency outflow has declined by 200 million USD and this factor will make positive affect on the GEL exchange rate.
Moreover, the imports downturn pace is also very important due to months. Namely, in January imports dropped by 0.8%, in February by – 3.6%, in March – by 5%, in April – by 20%.
This signifies a contraction in currency inflows has halted, while unchanged currency outflows are declining. This process is expected to cease the GEL devaluation.
Balancing tendencies are being discerned in the tourism sector too. The last month of 2014 recorded a decline in tourists’ inflows, but the yearly report showed a little upturn. The first quarter of 2015 has also ended in decline in tourists inflows. At the same time, the downturn pace was also decreasing and the month of April recorded a little upturn.
The month of May is also expected to record a growing tendency, because tourism zones are recording an upturn in visitors’ inflows. Moreover, Tbilisi has hosted EBRD’s annual meeting and business forum and several thousands of high-ranking officials have visited Georgia. Moreover, in summer Tbilisi will host Youth Olympic Games and the number of tourists’ inflows is expected to grow.
In January to April 2015, according to the Georgian Interior Ministry, a total of 1 381 000 visitors arrived in Georgia, down 2% compared to the same period of 2014. As to the monthly report, it is manifest the downturn paces have shrunk. In January international visits dropped by 3%, in February declined by 2%, March shrank by 2%, while April recorded a 0.4% upturn.
Money transfers represent a significant source for the GEL exchange rate stability. A huge volume of foreign currency is directed to Georgia in the form of money transfers every year. Problems in this direction appeared at the end of 2014 because of the Russian factor, where the Rubles devaluation seriously affected money transfers to Georgia.
The last period has recorded neither upturn nor decline in money transfers. This signifies the factors have negatively affected the exchange rate, but the tendency is not deepened.
Moreover, it is also important a high pace of growth in USD exchange rate on the international market has halted and even a little contraction is recorded.
Besides the mentioned external factors, there are no domestic negative impacts on the GEL. The money mass has not increased and no budget pressure is recorded on the GEL.
Thus, these developments and tendencies do not give ground to expect the GEL exchange rate further deterioration.
All negative factors have either weakened or unchanged. As a result, their negative impacts on GEL have, in practice, become neutralized.