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- News from georgia

Parliament approves new government of Georgia

- News from Georgia September 08, 2019 | Agenda.ge | Source

With 98 votes in favour and zero against, the parliament of Georgia has approved of the new cabinet under Giorgi Gakharia’s premiership.
The new PM said that 'security is the basis on which we should build on country’s development.'
"The most important component of our security  is Georgia’s foreign policy, the country’s pro-Western orientation, and European and Euro-Atlantic integration…The United States is our main strategic partner and there are no limitations in our cooperation," Gakharia said.
He stated that in the situation when 20 per cent of Georgia is occupied by Russia "we should be clever and rational in our policy against our enemy," for the national interests of the country and particularly the people living across the occupation line.
"We should fully utilise the potential of all existing formats against Russia."
Speaking about economy Gakharia said that the government should ensure "an effective communication" with business which will help strengthen the economy and create jobs.
"We should compare ourselves with what we have been before and where we stood yesterday. The goal should be a better future.”
The Georgian Dream ruling party nominated Giorgi Gakharia to take up the premiership, following Prime Minister Mamuka Bakhtadze's resignation on September 2.
Members of Giorgi Gakharia's new cabinet are: 

• Mikheil Batiashvili – Minister of Education, Culture and Sports
• Levan Davitashvili - Minister of Environment and Agriculture
• Natia Turnava – Minister of Economy
• Ivane Machavariani – Finance Minister
• Irakli Garibashvili – Minister of Defence
• Tea Tsulukiani – Minister of Justice
• Ekaterine Tikaradze – Minister of Internally Displaced Persons, Labour, Health and Social Protection
• Maia Tskitishvili – Minister of Regional Development and Infrastructure
• David Zalkaliani – Minister of Foreign Affairs
• Vakhtang Gomelauri - Interior Minister
• Ketevan Tsikhelashvili – Minister of Reconciliation and Civil Equality

The new government was approved amid protest rally outside the parliament, with young anti-occupation activists protesting Gakharia's premiership, due to June 20 rally dispersal. 

EU releases statement on the situation in Georgia

- News from Georgia September 07, 2019 | Interpress News | Source

The European Union has released a statement on the developments along the occupation line. The statement has been delivered at the OSCE Permanent Council in Vienna.“We regret that recent developments along the Administrative Boundary Line (ABL) have negatively impacted the overall security situation. The European Union is actively engaged with the recent highly concerning occurrences in the Gugutiantkari and Chorchana/Tsnelisi areas. The erection of fences by the de-facto authorities of South Ossetia backed by Russian border guards hinders the freedom of movement of the local population and deprives them from access to orchards and water resources, which are key to their livelihood. Such activities must stop immediately, and we urge the Russian Federation to engage in reversing them.We call on all relevant actors to continue using all existing mechanisms of communication, including the EU Monitoring Mission’s hotline and the IPRMs. Dialogue to lower tensions and to address the challenges of the conflict-affected population is vital. In this context, we welcome the work in the Ergneti IPRM, and urge the resumption of the activities of the Gali IPRM without preconditions and further delay.It is troubling that the human rights and humanitarian situation in the Georgian regions of Abkhazia and South Ossetia continues to deteriorate. Actively pursued “borderization”, increased military presence, continuous restrictions at the crossing points at the Administrative Boundary Line, unresolved issues of documentation that affect ethnic Georgians, pushing mother-tongue education out of Georgian schools, continuing arbitrary detentions, and obstacles to the rights of displaced persons require further efforts. The European Union renews its call on the Russian Federation and the de-facto authorities to reverse these trends. We reiterate our concern about the death of Georgian citizen Mr. Kvaratskhelia in the custody of Russian Federation Border Guards in the Gali district and call on the Russian Federation to ensure that there is swift investigation and full transparency on the circumstances of this tragic incident. The European Union is also concerned about the impunity surrounding the fatal incidents of Georgian citizens Mr. Tatunashvili in 2018 and Mr. Otkhozoria in 2016, and we reiterate our call for a thorough investigation into these cases, as well as into the case of Mr. Basharuli in 2014, to ensure justice and accountability.We reiterate that the European Union does not recognize the constitutional and legal framework in which the so-called “presidential elections” took place on August 25 in the Georgian region of Abkhazia, with a second round foreseen on September 8. Similarly, we do not recognize the legitimacy of the so-called “parliamentary elections” held in Georgia’s South Ossetia region on June 9. The decisions by the de facto authorities in the Georgian regions of Abkhazia and South Ossetia/Tskhinvali to conduct the so-called “elections” go against the continuing efforts to peaceful resolution of the conflict in Georgia.
This year marks the 11th anniversary of the conflict between Russia and Georgia, which unfortunately still remains unresolved. The European Union expresses its unwavering commitment to a peaceful resolution of this conflict in line with OSCE principles and commitments and the fundamental norms of international law. We remain engaged through the EU Special Representative and its co-chairmanship of the Geneva International Discussions, and through the work of the EU Monitoring Mission in Georgia. The EUMM remains the only international presence on the ground, which tirelessly keeps contributing to stabilization, normalization and confidence building between the conflict parties.
We reiterate our firm support for the sovereignty and territorial integrity of Georgia within its internationally recognized borders. The European Union calls on Russia to fulfil its obligations under the ceasefire agreement of 12 August 2008 and its subsequent implementing measures of 8 September 2008. The European Union also calls for access for the EUMM to the whole territory of Georgia, including the regions of Abkhazia and South Ossetia as per its mandate, as well as for human rights monitoring mechanisms, humanitarian and other civil society organizations”, reads the statement.

Incumbent Khajimba wins so-called presidential run-off in Abkhazia

- News from Georgia September 09, 2019 | Agenda.ge | Source

De facto incumbent President of Georgia’s Russian-occupied Abkhazia region Raul Khajimba has won the so-called presidential run-off, receiving 47.38 per cent of the vote, held in the region yesterday.
"Khajimba’s headquarters earlier reported that the incumbent president received 49.3 per cent of the vote after 80,800 of 81,100 ballots had been counted. He is nearly 1.5 percentage points ahead of leader of the opposition party Amtsakhara, Alkhas Kvitsinia,” Russian media TASS cited Khajimba’s press office as saying.
In the first round of the so-called elections held on August 25, 2019 Khajimba received 24.83 per cent of the vote, Kvitsinia – 22.91 per cent and former so-called deputy Foreign Minister Oleg Arshba – 22.56 per cent.
During the so-called runoff election, the voter turnout needed to be at least 25 per cent for the elections to be considered valid, with the winner elected by a simple majority of votes.
152 polling stations were opened for the so-called elections, where up to 83,000 people voted.
Khajimba, 61, was first elected to the role after the forceful resignation of de facto president Aleksand Ankvab in May 2014.
He headed an opposition party - Forum for the National Unity of Abkhazia - between 2010 and 2015.
Earlier Khajimba served as de facto vice-president (2005–2009), de facto PM (2003–2004) and de facto foreign minister (2002–2003).
He was unsuccessful in bids to become de facto president in 2004, 2009 and 2011.

• The war in Abkhazia took place between 1991 and 1992, which was fought between Georgian government and Abkhaz separatists. Russian armed forces and North Caucasian militants were also involved. The Abkhaz separatists, who were “fighting for independence from Georgia,” were supported by North Caucasus and Cossack militants and from Russian forces which were at that time stationed in and near Abkhazia.
• Between 13,000 and 20,000 ethnic Georgians and about 3,000 Abkhaz were reported killed, with more  than 250,000 Georgians becoming internally displaced persons or refugees.

Abkhazia and one other occupied region of Tskhinvali have been recognised as independent states only by Russia, Venezuela, Nicaragua, Nauru and Syria since the Russia-Georgia war in 2008.
The rest of the international community says that the regions are occupied by Russia.

Tourism dynamics improved in August

- News from Georgia September 09, 2019 | Caucasus Business Week | Source

Based on weekly border crossings data, tourism dynamics has improved in August.
While the average increase in international arrivals (based on incoming border crossings) was 2.0% YoY in the first four weeks (July 8 – August 4) following Russia’s flight ban on 8th of July, the growth improved to 7.4% YoY in the following four weeks (August 5 – September 1).
This tendency is indicating that the tourism industry is likely gradually getting back on track as the first impact of the shock is waning thanks to the more moderate decline from Russia and the pick up from other countries.
Together with the overall improving tendency of arrivals, visitors from the countries with higher per visitor spending continue to increase at solid rates. For example, the growth of the number of incoming visitors from the EU has an increasing tendency reaching 31.1% YoY in the week of 26th of August.
More detailed data will be available as the GNTA releases monthly figures on number of visitors and later during the month as the NBG publishes the initial assessment of inflows.
Visit TBC Research for further updates. 

Analysis/Commentary

TBC research - NBG moves more decisively as inflation picks up further

Analysis/Commentary September 07, 2019 | Business Media | Source

On its 4th of September meeting, the Monetary Policy Committee (MPC) of the National Bank of Georgia decided to raise the policy rate by 0.5 PP to 7.0%, a sharpest rate increase since the end of 2015. TBC Research has issued an an analysis on Georgia's monetary policy, the document reads as follows:

The NBG to tighten further unless the GEL strengthens
As stated by the NBG, along with the one-off factors related to the excise tax increase on tobacco, upward pressure of nominal effective exchange rate depreciation on inflation has been increasing recently, also influencing inflation expectations. In addition, the NBG stressed its decision to further tighten policy until the exchange rate pressures subside – a demonstration of quite strong position on currently undervalued exchange rate. in particular, during the press conference, the governor pointed out the possibility of additional FX interventions if deemed effective and necessary, as well as possibility of carrying out the extraordinary MPC meeting ahead of scheduled one on October 23, to address the GEL undervaluation.
At the same time, an estimated core inflation remains below 3%, indicating that the demand pressures on inflation are weak, according to the NBG. Also, despite the slowdown in tourism, the central bank expects CA deficit to improve further. As for the GDP growth, the initial indicators are assessed as pointing to a stronger growth.

Inflation to reach around 7% unless the GEL strengthens
Inflation stood at 4.9% in August, while a seasonally adjusted monthly annualized inflation came in at 7.8%. As indicated by the seasonally adjusted figures, inflation pressures have been building up since the beginning of the year.
Real effective exchange rate has been substantially undervalued and with significant pass-through on inflation (in the short term around 30-40% of effective exchange rate depreciation is passed on the inflation) it has been the major driver of the price increase. Currently estimated daily GEL REER is around 10% below its medium term average, implying undervaluation comparable to that in 2015, when the economy faced much larger external shock.
Per TBC Research estimates, unless the GEL REER appreciates substantially from its current level, the yearend inflation is expected at around 7%.

The USD strengthened internationally, explaining only a fraction of the GEL weakness
Global factors have also been affecting the GEL as the USD has strengthened a bit further being at its historic highs. Despite lower yields on US treasuries, especially on those with longer term maturities, USD have been appreciating against major currencies likely reflecting the safe haven premium, as the risks related to the escalating US-China trade war have been denting the optimism on growth in the Euro Area and in some major emerging markets.
Given currently stronger USD, we update our earlier projection of the USD/GEL at 2.8 or even stronger GEL to around 2.85 in the coming months assuming approximately the same level of major trading partners’ currencies against the USD and the commodity prices. Probably the GEL at this or even stronger level lies within the range of tolerance for the central bank, based on the GEL nominal effective exchange rate impact* on prices. Even if believed in the benefits of the temporary high inflation under the external shock in the Georgian context, the external balance has not worsened that much. This should be true based on the available information even though the BoP data, including FDIs, has not been yet released. In case the external shock is stronger than believed, still the NBG has demonstrated the commitment to the price stability as its primary goal and is highly unlikely to tolerate a sizeable and persistent deviation of the inflation from its 3% target.
Strong GDP growth and positive labor market dynamics are also arguments supporting the tighter monetary stance. Unless the GEL REER strengthens, we expect further tightening. This may take the form of additional rate hikes, FX interventions, stricter collateral requirements to obtain central bank financing (quantitative tightening) being still attractive as compared with the deposit rates. Also, the relaxation of FX lending regulations is an option supporting the exchange rate and growth without excessive risk taking.

The GEL also supported by the higher interest rate differential
Historically lower UST yields have been supportive of the portfolio inflows to the emerging markets, also evident in case of Georgian government securities. Share of nonresident holdings in Georgian treasuries have been increasing along with the lower 10Y UST yields since the mid-2018. Currently, as interest rate differential between the GEL and USD securities has increased (on the most recent auction, yields on domestic 1Y T-bills increased by 50 BP) along with continued fall in UST yields, portfolio inflows could increase further, supporting the GEL in the short term. Overall, judging from the historical perspective, the USD yield appears to be the most important.

Stronger GEL/USD will counteract negative impact of the tighter policy stance on the domestic demand
Currently, GEL lending have been driving the credit growth, in business, including corporate bonds as well as retail segments. Tighter bank margins are also an
argument for more expensive GEL credit. Tighter monetary stance, especially in case of further rate hikes and employing additional tools, will have adverse impact on the GEL lending and the domestic demand.
On the contrary, if the GEL strengthens against the USD, it will likely counteract the negative impact on the growth through consumer as well as business sentiment channels. This is related to the balance sheet effects as well as general perception of the USD/GEL being an indicator of the health of the economy.
Overall the impact on growth of tighter monetary stance shouldn’t be strong and there won’t be need for further depreciation even if the growth is not affected at all, in our view. This view is supported by the following:

• The GEL is assessed already as more undervalued than explained by the fundamentals and is likely overshooting due to adverse expectations. The expectations may somewhat reverse due to more hawkish NBG stance creating the expectation of a stronger GEL.
• While GDP annual growth estimates are strong, there might be some weakness on a monthly/quarterly basis. Also, some leading indicators like business confidence may point to a weaker growth. This could be an indication, that exchange rate overshooting coupled with the other adverse developments have already impacted the domestic demand more than the external shock would require.
• Tighter GEL conditions and the GEL appreciation should contribute to weaker GEL and stronger FX lending and other sources of external financing, supporting the GEL and the growth at the same time without excessive risk taking.