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GEL Depreciates Again

After a slight strengthening, the exchange rate of the Georgian national currency has fallen again. The Minister of Finance of Georgia has spoken about the devaluation of the national currency today. In recent weeks, the rate of GEL against US dollar decreased by 4%, although,  a reduction has not yet caused a rise in consumer prices, but according to experts, inflation is expected. The fall of more than 5% would lead to higher prices for imported products. A few days ago, the National Bank spent USD 40 million to keep the rate. Georgia’s consumer market is clogged with imported goods, so changes in exchange rate are always very sensitive, and in the case of its sharp decline, there is concern  that the products will go up. According to importers if the gel point has depreciated with 2-3% products get more expensive. Prices of imported products linked to LARI exchange rate. If LARI exchange rates raises more than 1,9 point, products will become with 10% more expensive.

Levan Kalandadze

Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative

unfortunately, this year we continued and still continue the negative trend that has taken place in late 2013. The government has not made the proper conclusions from the results of the failure 2013 fiscal year. Talking about the depreciation lari of up to 76 to 83 caused seasonal factors and there is nothing alarming is very far from reality.  It all looks like put blame the season and hide mistakes made by government and his is not adequate assessment of the situation.

The problem of this year was the same as in the fourth quarter of 2013 – Improperly planned and implemented budgetary and financial process in the year 2014 led to a non-compliance  budgets for six and nine months. At present, by the end of the year the Ministry of Finance has planned to spend more than a billion. This directly contributes to excess supply in the market and stimulates the depreciation of the lari.

In addition, the balance of payments and the current account of the country is not in a good condition. Reducing the flow of foreign direct investment and other sources of foreign exchange are directly reflected in the demand for dollars. This has a negative impact on the exchange rate of GEL.

A depreciation trend Of LARI has negative impact on consumer prices. Georgian consumer market too much oriented on import. Consumer demand for the dollar and the depreciation of LARI aggravated the burden of all of us  and this increases the cost of living.

Stabilization of the LARI exchange rate and maximum loss management processes highly depends on consistent and coordinated working of the Ministry of Finance and with the National Bank in this period and how much will be agreed and the corresponding expenditure policy priorities of the Ministry of Finance and the National Bank of anti-inflation measures instruments.


Expert of Economy

Unfortunately, we are facing the same problem at the end of this year. The increased costs at the end of the year affect a decrease in the rate and at the stage a falling rate is within 4%. However, apart from spending policies,  reduced exports in the last 3 months, reduced remittances in the last month, an increase in imports,  3% strengthening of the US dollar against the euro,  reduced tourist flow and income, which is a seasonal factor for  this period, are among the  important factors.

We have no information about the investment flows. However, a significant change is not expected in this regard with respect to the previous quarter. Also we should not forget the impact of the international economic processes. There is a shortage of US dollars in Ukraine and Russia which could be a factor causing the weakening of GEL.

I advise people not to hurry to convert GEL to other currencies as they may be affected, since the rate will be decreased and balanced. The process is manageable, and the National Bank has all the resources to control the process.