Georgian macro overview
20 AugustPage 12020 Forward looking statements
Disclaimer
This presentation contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Georgia Capital PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, which could include, among other things: impact of COVID-19; regional instability; regulatory risk across a wide range of industries; investment risk; liquidity risk; portfolio company strategic and execution risks; currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; and other key factors that indicated could adversely affect our business and financial performance, which are contained in our past and future filings and reports and also the 'Principal Risks and Uncertainties' and Emerging Risks included in the 1H20 Results Announcement and Georgia Capital PLC’s Annual Report and Accounts 2019. No part of this presentation constitutes, or shall be taken to constitute, an invitation or inducement to invest in Georgia Capital PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. Georgia Capital PLC and other entities undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this presentation should be construed as a profit forecast.
Page 2 COVID-19 update | Georgia COVID-19 statistics Lowest number of confirmed cases and deaths per capita in the region Georgia: COVID-19 response COVID-19 cases: dynamics in Georgia*
1600 – Border checks began on 27 February and schools switched to distance learning from 29 Total Recovered Total Cases Active Cases February; 1400 – Travel restrictions for neighbouring countries were imposed on 5 March, followed by 1200 mandatory self-isolation/quarantine since 9 March; 1000 Peak on 2nd of May: – All borders were closed on 18 March and state of emergency was in place from 21 March 800 367 active cases until 22 May; 600 – Intracity movement was banned by the end of March; 400 – Six stage lockdown exit strategy, introduced from 27 April, successfully completed in the 200 beginning of July: 0 Largely all economic activities have been resumed by mid-July, local tourism resumed
from 15 June and while external borders were opened to five EU member states on 8 July
1-Jul-20 7-Jul-20
1-Jun-20 7-Jun-20
2-Apr-20 8-Apr-20
13-Jul-20 19-Jul-20 25-Jul-20 31-Jul-20
3-Mar-20 9-Mar-20
6-Aug-20
2-May-20 8-May-20
13-Jun-20 19-Jun-20 25-Jun-20
20-Apr-20 14-Apr-20 26-Apr-20
26-Feb-20
15-Mar-20 21-Mar-20 27-Mar-20
12-Aug-20 18-Aug-20
14-May-20 20-May-20 26-May-20 COVID-19 cases per 1M persons* COVID-19 deaths since the first death case
16,948 14,118 10 8 8,173 7,374 6 6,389 5,493 4,206 4,134 3,757 3,383 2,967 4 2,161 2,089 1,886 1,671 693 535 440 339 307 2
logarithmic scale scale logarithmic 0
1 4 7
Iran
10 46 13 16 19 22 25 28 31 34 37 40 43 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97
Italy
USA
100
Spain
Japan
Russia
Turkey
Greece
Croatia
Belarus
Ukraine
Czechia
Georgia
Bulgaria Slovakia
Armenia Days
Romania Azerbaijan
Kazakhstan Georgia Azerbaijan Armenia Russia Turkey South Korea
Total cases* Active cases* Quarantined* Hospitalized*
1,351 242 7,235 302 Page 3 *As of 18 August 2020 COVID-19 update | Georgia Government measures
US$ 3 billion funding facility Economic Plan
– US$ 3 billion (predominantly loans) from international donors (incl. US$ 450m from IMF): Total budget – GEL 3.5 billion – US$1.5 billion intended for the private sector ➢ Social aid GEL 1.03 billion – US$1.5 billion for the public sector
➢ Economic support and GEL 2.1 billion Monetary policy business aid
➢ Anti-pandemic measures GEL 0.35 billion – Easing non-price credit conditions (LTV, PTI, etc.); – Intervening in the FX market (US$ 270 million sold in March-July); Support measures – Monetary policy rate reduced to 8.0% and gradual exit – Sectoral special support packages for tourism, agriculture and real estate sectors; from strict monetary policy announced; – Subsidies for utility bills, basic product prices and construction materials; – Introducing US$ 400 million currency swap facility for the – Loan restructuring for all businesses; financial sector to provide GEL liquidity; – VAT returns and long-term funds for banks; – Reduced capital conservation buffer (2.5% of Risk – Extra funding to support business, including a credit guarantee scheme (GEL 2bln); Weighted Assets) and 2/3 of currency induced credit risk – Tax deferrals for car importers; buffer total of GEL 1.6 billion; – Social aid programs to address job losses; – Temporary liquidity instrument to support credit to SMEs; – Pension indexation from Jan- 21; – Moratorium announced on new regulatory activity;
Page 4 COVID-19 update | Georgia Macroeconomic fundamentals in 1H20
Monthly Economic Activity Estimate, y-o-y growth Fast indicators
➢ Economy contraction has been eased from April and GDP contraction in June was 7.7% y-o-y. ➢ Merchandise trade and money transfers have recovered significantly, with remittances posting 18% ➢ Strong pre-COVID-19 macroeconomic fundamentals were reflected in the 1H20 GDP contraction, y-o-y growth in June. which was only 5.8% y-o-y. Remittances up 18% in June and up 22% in July, y-o-y 30% 6.5 7.5 6.7 5.5 5.6 5.6 5.6 6.0 5.1 5.0 6.1 5.8 5.2 5.7 6.4 5.1 20% VAT turnover 4.4 4.0 4.6 3.5 4.6 4.7 3.8 Remittances 2.0 2.2 2.2 10% 0% Exports -10% -2.7 -20% -30% -7.7 Imports -13.5 -40% -16.6 -50%
Jan Feb Mar Apr May Jun
Jul-18 Jul-19
Jan-18 Jan-19 Jan-20
Jun-20 Jun-18 Jun-19
Oct-18 Oct-19
Apr-18 Apr-19 Apr-20
Feb-18 Feb-19 Feb-20
Sep-18 Sep-19
Dec-18 Dec-19
Mar-20 Mar-18 Mar-19
Aug-18 Aug-19
Nov-18 Nov-19
May-19 May-20 May-18 Remittances Export Import VAT turnover, y/y Source: Geostat, Source: Geostat, NBG
Exchange rate indices (1 January=100) Key highlights
➢ GEL depreciated in March and stabilised around USD/GEL 3.2 at the beginning of April, appreciating to around USD/GEL 3.05 on average since the beginning of June. – IMF forecasts that real GDP will contract by 4% in 2020, rebounding to 4% in 2021.
USD/GEL USD/TRY USD/UAH USD/RUB – Inflation was 6.3% on average in Jan-July. IMF forecasts average inflation at 4.7% in 2020. 130 130 – NBG decreased the monetary policy rate by 100bps to 8.0% in Apr-Jul. 120 120 – Tourism revenues fell 26% in 1Q20 and 97% in 2Q20, as international travel is halted. 110 110 – Official reserve assets totaled $3.6 billion by the end of May, with reserves providing cover 100 100 for 4.3 months of imports based on Q1 data. 90 90 – The fiscal deficit and public debt are expected to rise to around 8.5% and 60% in 2020 respectively, according to IMF.
Source: NBG Page 5 COVID-19 update | Georgia Macroeconomic fundamentals in 1H20 (cont’d)
Unemployment rate 1H20 tax revenues | Actual vs. Planned
6.0 +0.9ppts 100.4%
5.0 4.57 4.59 14.0% +0.4ppts
12.8% 13.0% 4.0 12.3% 12.3% 12.1% 12.2% 11.9% 12.0% 11.4% 3.0 11.1% 10.9% billions GEL 101.6% 11.0% 100.1% 2.0 1.63 1.63 1.68 1.71 10.0% 97.0% 103.3%
1.0 0.58 103.9% 87.5% 9.0% 0.56 0.56 0.58 0.04 0.04 0.09 0.08 8.0% 0.0 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Income tax Profit tax VAT Excise Import tax Other tax Total tax revenues
Actual Projected Completion rate (%)
Source: Geostat Source: State treasury
Page 6 Sovereign ratings with favourable macro fundamentals
Key Ratings Highlights General Facts
Rating Agency Rating Outlook Affirmed
Ba2 Stable September 2019
BB Stable October 2019 Georgia BB Negative April 2020
Georgia is favorably placed among peers Fitch Rating Country Country Rating Outlook Armenia BB- Negative ▪ Area: 69,700 sq. km ▪ Life expectancy: 73.5 years Azerbaijan BB+ Negative ▪ Population (2019): 3.7 million ▪ Official language: Georgian ▪ Capital: Tbilisi; ▪ Literacy: 100% Belarus B Stable ▪ Currency (code): Lari (GEL) Czech Republic AA- Stable Economy Georgia BB Negative ▪ Nominal GDP (Geostat) 2019: GEL 50 billion (US$17.7 billion) Kazakhstan BBB Stable ▪ Real GDP growth rate 2019: 5.1% ▪ Real GDP 2010-2019 annual average growth rate: 4.8% Turkey BB- Stable ▪ GDP per capita 2019 (PPP, international dollar) IMF: 12,227 ▪ Annual inflation 2019: 4.9% Ukraine B Stable ▪ External public debt to GDP 2019: 32.4%
Page 7 Georgia’s key economic drivers
Top performer globally in WB Doing Business over the past 12 years Liberal economic ▪ Liberty Act (effective January 2014) ensures a credible fiscal framework: policy ▪ Fiscal deficit/GDP capped at 3%; Public debt/GDP capped at 60%; ▪ Business friendly environment and low tax regime (attested by favourable international rankings);
A natural transport and logistics hub, connecting land-locked energy rich countries in the east and European markets in the west ▪ Access to a market of 2.8 billion customers without customs duties: Free trade agreements with EU, China, Hong Kong, CIS and Turkey and GSP with USA, Canada, Japan, Norway Regional logistics and Switzerland; FTA with Israel and India under consideration. and tourism hub ▪ Tourism inflows stood at US$ 3.3 billion in 2019 and international travelers reached 9.4 million in 2019 (up 7.8% y-o-y), out of which tourist arrivals were up 6.8% y-o-y to 5.1 million. ▪ Regional energy transit corridor accounting for 1.6% of the world’s oil and gas transit volumes.
An influx of foreign investors on the back of the economic reforms have boosted productivity and accelerated growth Strong FDI ▪ FDI stood at US$ 1.3 billion (7.2% of GDP) in 2019. ▪ FDI averaged 8.5% of GDP in 2010-2019.
Support from Georgia and the EU signed an Association Agreement and DCFTA in June 2014 international ▪ Visa-free travel to the EU is another major success in Georgian foreign policy. Georgian passport holders were granted free visa entrance to the EU countries from 28 March 2017. community ▪ Discussions commenced with the USA to drive inward investments and exports. ▪ Strong political support from NATO, EU, US, UN and member of WTO since 2000; Substantial support from DFIs, the US and EU.
Developed, stable and competitively priced energy sector ▪ Only 20% of hydropower capacity utilized; 155 renewable (HPPs/WPPs/SPPs) energy power plants are in various stages of construction or development. Electricity transit ▪ Georgia imports natural gas mainly from Azerbaijan. hub potential ▪ Significantly boosted transmission capacity in recent years, a new 400 kV line to Turkey and 500 kV line to Azerbaijan built, other transmission lines to Armenia and Russia upgraded. ▪ Additional 2,000 MW transmission capacity development in the pipeline, facilitating cross-border electricity trade and energy swaps to Eastern Europe.
▪ Georgia underscored its commitment to European values by securing a democratic transfer of political power in successive parliamentary, presidential, and local elections and by signing an Association Agreement and free trade agreement with the EU. ▪ New constitution amendments passed in 2013 to enhance governing responsibility of Parliament and reduce the powers of the Presidency. Political ▪ Continued economic relationship with Russia, although economic dependence is relatively low. environment ▪ Russia began issuing visas to Georgians in March 2009; Georgia abolished visa requirements for Russians – Russia announced the easing of visa procedures for Georgians citizens stabilised effective December 23, 2015. ▪ Direct flights between the two countries resumed in January 2010. However, they have been banned again since July 2019 following the decision from Russia. ▪ Member of WTO since 2000, allowed Russia’s access to WTO; In 2013 trade restored with Russia. ▪ In 2019, Russia accounted for 13.2% of Georgia’s exports and 10.8% of imports.
Page 8 Institutional oriented reforms
Ease of Doing Business | 2020 (WB Doing Business Report) Economic Freedom Index | 2020 (Heritage Foundation)
New Zealand 1 Singapore 2 Ireland 6 US 6 UK 7 Georgia 7 Georgia 12 Up by four places compared to 2018 Norway 9 Lithuania 11 Lithuania 16 Estonia 18 Czech Republic 23 Kazakhstan 25 Germany Russia 28 27 Azerbaijan 34 Latvia 32 Poland 40 Armenia 34 Czech rep. 41 Armenia 41 Bulgaria 36 Turkey 47 Azerbaijan 44 Romania 55 Turkey 71 Bulgaria 61 Ukraine 64 Russia 94
Corruption Perception Index | TI 2019 Business Bribery Risk, 2019 | Trace Open Budget Index, 2019 | International International Budget Partnership Lithuania 35 New Zealand Poland 41 Georgia is on Estonia 14 1 Georgia 44 Lithuania 24 Sweden 3 Czech Republic 44 par with EU Japan 25 Georgia 5 Latvia 44 member states Georgia 27 Norway 7 Italy 51 Czech Republic 34 Australia 8 Slovakia 59 Latvia 42 France 13 Belarus 66 Romania 68 Russia 14 Romania 70 Armenia 27 Bulgaria 16 Bulgaria 74 Bulgaria 77 UK 19 Armenia 77 Azerbaijan 79 Germany 20 Turkey 91 Belarus 108 Romania 25 Kazakhstan 113 Russia 110 Ukraine 26 Moldova 120 Moldova 117 Poland 32 Czech Republic Ukraine 126 Ukraine 122 34 Azerbaijan Kazakhstan 126 Turkey 123 37 Russia 137 Turkey Kazakhstan 126 46 Uzbekistan 153 Azerbaijan Uzbekistan 181 81 Sources: Transparency International, Heritage Foundation, World Bank, Trace International. Page 9 COVID-19 impact – IMF forecasts
Gross Domestic Product Consumer Price Inflation
Source: IMF Source: IMF
US$ b 7% 20 16% 6.0% 6% 15 12% 4.9% 4.7% 5% 10 5.1% 8% 4.0% 4.8% 4.8% 4.0% 3.0% 2.9% 4% 3.6% 5 4% 3% 2.6% 0 0% 2.1% 2% -5 -4% 1% -4.0% -10 -8% 0% 2015 2016 2017 2018 2019* 2020F 2021F 2015 2016 2017 2018 2019 2020F 2021F GDP USD Real GDP, Y-o-Y growth
Current Account Balance Fiscal Deficit (GFSM 1986, IMF Modified) Source: IMF Source: IMF 0%
-2% -2 -2.3 -2 -4% -2.7 -2.7 -4 -2.9 -6% -5.1% % -4.8 -8% -6.8% -6 -7.5% -8.1% -10% -8 -12% -11.8% -11.3% -8.5 -14% -12.5% -10 2015 2016 2017 2018 2019 2020F 2021F 2015 2016 2017 2018 2019 2020F 2021F
Page 10 Diversified resilient economy
Gross domestic product Diversified nominal GDP structure, 1Q2020 Source: Geostat Source: Geostat Growth was robust in 2019, but will be negative in 2020 due to Information and US$ bln the pandemic, with IMF expecting real GDP to contract by 4% Accommodation and food service communication 20 16% activities 3% Industry 5% Healthcare 14% 5% 15 12% Education Financial and 7.4% 5% Trade 10 6.4% 8% insurance activities 5.1% 5.0% 5% 13% 4.4% 4.8% 4.8% 3.6% 3.0% 2.9% Construction 2.2% 5 4% 7%
Transportation and 0 0% storage Real estate
7% Public administration 13%
2016 2011 2012 2013 2014 2015 2017 2018
2019* and defence 2020Q1* 2019Q1* Other Nominal GDP, USD Real GDP, Y-o-Y growth 7% Agriculture 7% 9% One of the Fastest Developing Economies in the Region Monthly Economic Activity Estimate, y-o-y growth Source: IMF Source: Geostat Comparative real GDP growth rates, % Economy contraction has been eased from April and GDP contraction in June was 7.7% y-o-y (2007-2019 average) 4.6 4.6 4.7 6.5 7.5 6.7 6.4 3.8 3.9 5.5 5.6 5.6 5.6 6.0 5.1 5.0 6.1 5.8 5.2 5.7 5.1 3.7 4.4 4.0 4.6 3.5 4.6 4.7 3.8 3.3 2.0 2.2 2.2 2.6 2.9 1.9 2.0 2.0 1.4 -2.7 0.0 -7.7
-13.5
-16.6
Jul-18 Jul-19
Jan-18 Jan-19 Jan-20
Jun-18 Jun-19 Jun-20
Oct-18 Oct-19
Apr-18 Apr-19 Apr-20
Feb-18 Feb-19 Feb-20
Sep-18 Sep-19
Dec-18 Dec-19
Mar-18 Mar-19 Mar-20
Aug-18 Aug-19
Nov-18 Nov-19
May-18 May-19 May-20 ¹ preliminary data Page 11 Room for further job creation Unemployment rate down 1.1 ppts y-o-y to 11.6% in 2019 UNDP Human Development Index Sources: GeoStat Sources: UNDP
18.3 0.79 17.9 0.79 2000 17.4 17.417.3 20 0.78
17.216.9 0.78 0.77
15.115.4 0.77 1900 14.614.114.0 0.76 13.5 13.9 13.9 0.75
12.412.6 12.7 12.7 15 0.74
11.6 0.74
0.73 0.73
11.1 0.73
1800 10.3
0.72 0.71
1700 10 0.70
0.69
0.68 0.68
1600 0.67 5 1500
1400 0
2003 1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Employed Unemployment %
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Average monthly nominal earnings in business sector Labor force decomposition Sources: GeoStat Sources: GeoStat Hired workers accounted for 50% in total employment in 2019 2000 2000 1,983 1,988 2,005 1,985 2,018 1,996 1,983 1,912 1,909 1,945 1,972 1,971 1,979 1,940 1,911 1,405 1,319 1,316 1500 1500 300 345 345 290 284 279 276 246 1,242 1,187 1,241 1,227 294 331 347 361 343 335 221 1,107 1,144 1,106 1,150 1,152 1,024 1000 1000 928 910 882 833 840 936 944 1,050 1,008 949 974 975 957 952 940
500 500
824 860 849 684 716 694 744 798 801 0 0 632 608 629 622 635 669
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Energy Construction Trade Tourism Real estate Total Hired Self-employed Unemployed Not-identified worker Page 12 Inflation targeting since 2009
Inflation y-o-y vs. inflation target Inflation y-o-y Sources: NBG, GeoStat Source: GeoStat
10 Core inflation remains high, pointing to a persistent 10 As demand and supply shocks stemming from the pandemic move 15.0 trend in prices inflation in different directions, we expect the demand side to prevail with 13.0 8 8 time and inflation to decelerate towards the target by the end of 2020, 11.0 reaching 3% in the 1st half of 2021. 6 6 9.0 4 4 5.7 7.0
5.0 2 2
3.0 0 0 1.0 -2 -2
-1.0
Jul-17 Jul-18 Jul-19 Jul-20
-3.0 Jul-16
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Sep-16 Sep-17 Sep-18 Sep-19
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
Nov-16 Nov-17 Nov-18 Nov-19
May-16 May-17 May-18 May-19 May-20
Jul-16 Jul-17 Jul-18 Jul-19 Jul-20
Jul-15 Monthly Inflation Headline Inflation Core (non-food, non-energy) Inflation
Jan-20 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Oct-16 Oct-15 Oct-17 Oct-18 Oct-19
Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 M2 vs. inflation, y-o-y,% Average monthly nominal earnings Sources: Geostat, NBG Source: Geostat
80 16 Monthly nominal earnings increased on average 7.7% y-o-y in 2010-2019 14 1,400 60 12 10 1,200 40 8 6 1,000 20 4 800 0 2 0 600 -20 -2 -4 400
-40 -6
2014_I 2015_I 2016_I 2017_I 2018_I 2019_I 2019_I 2020_I
2014_II 2015_II 2016_II 2017_II 2018_II 2019_II
Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
2014_III 2015_III 2016_III 2017_III 2018_III 2019_III
Jan-11 Jan-13 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
2014_IV 2015_IV 2016_IV 2017_IV 2018_IV 2018_IV 2019_IV M2 Y/Y % LHS Inflation Y/Y % RHS Page 13 Current account
Current account balance (% of nominal GDP) Exports and Re-exports, US$ billion Sources: NBG Double digit shrinking in the trade deficit helped the Current Account balance Source: NBG (CAB) to improve to a historic low of 5.1% in 2019, providing a strong position 30% to withstand the pandemic, with Q1 deficit-to-GDP ratio equaling 11% 20% Service exports Goods exports, geo-originated Re-exports 12.0 20% 10% 1.0 10.0 10% 0.8 0% 0.5 0% 8.0 1.1 0.9 -10% 0.9 0.4 0.3 -10% 3.6 3.9 6.0 0.7 -5.6% -6.8% -5.0% -5.9% -20% 3.1 -20% -9.8% -10.2% -8.1% 0.3 0.5 3.1 3.1 2.5 -12.2% -11.4% -11.8% -12.5% -11.0% 4.0 0.2 0.2 2.6 0.2 2.5 -30% -30% 0.1 2.5 0.2 0.0 0.1 1.9 0.2 2.0 0.0 0.0 0.0 1.8 2.1 1.6 4.0 4.5 4.6 1.4 3.0 3.0 3.1 3.3 -40% -40% 1.0 1.3 2.0 2.6 0.9 0.8 0.5 0.5 0.6 0.7 1.1 1.3 1.3 1.6
0.0 0.4 0.4 0.4 0.5 0.6 0.7 0.9 0.9 0.7
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2019Q1 2020Q1
2004 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Goods, net Services, net Investment income, net 2000 2020Q1 Current transfers, net Current account FDI 2019Q1 FDI and capital goods import
Source: GeoStat
20%
15% 11.7% 10.3% 11.1% 10.3% 8.7% 8.5% 8.4% 9.3% 8.4% 10% 7.5% 8.1% 7.9% 7.6% 7.4% 7.8% 7.9% 7.5% 7.8% 7.4% 6.9% 7.2% 6.5% 7.2% 7.2% 7.1% 7.1% 7.2% 5.7% 6.2% 5.9% 4.8% 4.4% 5%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q1 2019Q2 2019Q3 2019Q4 2019 2019Q1 2020Q1
FDI, % of GDP Capital Goods Import, % of GDP Page 14 Diversified sources of capital
Strong foreign investor interest Visitors and tourism revenues Sources: GeoStat Sources: GNTA, NBG 2Q20 tourism revenues fell by 97% y-o-y, as borders remain closed (down 69% y-o-y in 1H20) 2,500 25% 8.7 9.4 2,000 20% $4,100 7.9 10.0 6.3 6.7 $3,100 5.7 5.9 8.0 1,500 11.6% 12.1% 15% 4.7 10.4% 10.9% 3.9 6.0 $2,100 3.1 7.5% 7.2% 7.1% 7.4% 4.0 1,000 6.9% 6.2% 5.9% 10% 1.4 4.4% $1,100 2.0 500 5% $100 0.0
0 0%
2012 2011 2013 2014 2015 2016 2017 2018 2019
6M2019 6M2020
2011 2016 2010 2012 2013 2014 2015 2017 2018 2019
Tourism inflows, US$ mn, LHS Number of foreign visitors, mln, RHS 1Q2020 FDI, US$ mln, LHS FDI as % of GDP 1Q2019
Remittances Merchandise exports Source: NBG Source: Georstat Remittance inflows fell by 4.6% y-o-y in Jan-Jun 2020, reflecting an 18% Goods exports fell by 15.3% in 1H20, with April and May hit the hardest, and y-o-y growth in June, after a low of -42% y-o-y in April 450 June relatively better 60% mln $ 400 185 2017 2018 2019 2020 350 40% 169 300 165 20% 250 137 145 132 200 126 126 0% 150 125 100 -20% 105 50 79 0 -40% 85
65
Jul-17 Jul-18 Jul-19
Jan-17 Jan-18 Jan-19 Jan-20
Sep-17 Sep-18 Sep-19
Mar-17 Mar-18 Mar-19 Mar-20
Nov-17 Nov-18 Nov-19
May-19 May-17 May-18 May-20 45 Exports, US$ mn, LHS % change y/y, exports, RHS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 15 Tourism sector Tourism revenues to GDP Spending per arrival, 2017 Sources: NBG, Geostat 18% 18% Source: WDI 3600 17% 20% 1496 15% 1600 3100 14% 1310 13% 1400 2600 11% 15% 10% 10% 1200 2100 9% 857 848 1000 823 771 6% 10% 763 757 714 1600 800 692 661 629 591 555 527 US$ million US$ 1100 5% 600 458 441 600 400 140 100 0% 200
0
2012 2016 2011 2013 2014 2015 2017 2018 2019
1Q2019 1Q2020
Tourism inflows, US$ mn, LHS Tourism revenues, % of GDP
Arrivals to country’s population, 2017 Number of Tourists (overnight visitors) Source: WDI Source: GNTA 4 3.8 During Mar-Jun 2020, the number of tourists fell 7 times y-o-y, with borders 800 remaining closed aside from France, Germany and the Baltic states 3.5 3.1 3.0 3 2.5 2.5 600 2.5 364 2 1.7 1.7 1.6 Thousands 400 258 1.5 1.3 1.0 1.0 0.9 1 0.6 0.5 0.5 0.5 200 144 0.3 27 27 29 0.5 0.2 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017 2018 2019 2020
Page 16 Diversified foreign trade
Goods’ Trade Deficit Oil imports Source: GeoStat Source: GeoStat
In 2Q20, the trade deficit fell by 34%, as exports were cut by 23.7% and imports contracted by 1200 29.3% on the back of the pandemic Oil imports, US$ mn Oil imports, % change, y/y 90% 0 50% 1000 40% 800 70% -100 30% 600 50% -200 20% 10% 400 -300 0% 30% -10% 200 -400 -20% 10% -30% 0 -500 -10% -40% -200 -600 -50%
-400 -30%
Jul-17 Jul-18 Jul-19
Jan-17 Jan-19 Jan-20
Jan-18 -600 -50%
Sep-17 Sep-19 Sep-18
Mar-17 Mar-18 Mar-19 Mar-20
Nov-17 Nov-18 Nov-19
May-18 May-20 May-17 May-19
2019 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Trade Deficit, US$ mn, LHS % change y/y, trade deficit, RHS 2001
2020M6 2019M6 Electricity generation and trade, GWH Source: ESCO 1400 TPPs HPPs WPPs Imports Exports Domestic Supply 1200 1000
800 46% 63% 54% 59% 67% 59% 54% 55% 45% 99% 68% 64% 93% 99% 63% 71% 55% 52% 600 99% 78% 99% 84% 83% 99% 99% 86% 99% 91% 70% 96% 99% 74% 83% 86% 80% 74% 73% 81% 98% 99% 400 73% 88% 200
0
Jul-17 Jul-18 Jul-19
Jan-17 Jan-18 Jan-19 Jan-20
Jun-17 Jun-18 Jun-19 Jun-20
Oct-17 Oct-18 Oct-19
Apr-17 Apr-18 Apr-19 Apr-20
Feb-17 Feb-18 Feb-19 Feb-20
Sep-17 Sep-18 Sep-19
Dec-18 Dec-17 Dec-19
Mar-17 Mar-18 Mar-19 Mar-20
Aug-17 Aug-18 Aug-19
Nov-17 Nov-18 Nov-19
May-17 May-18 May-19 May-20 Page 17 Diversified foreign trade
Imports of Goods, contribution to growth Foreign Demand, 1H20 Source: NBG Source:, Geostat All types of goods contributed to shrinking imports in Q2, with consumer goods driving the half of the decline Crude materials except fuels Investment goods Intermediate goods Consumer goods Imports y/y Machinery and transport equipment
30% 8% 28% Beverages and tobacco 20% Manufactured goods 10% 9% 0% Chemicals and related products -10% Food and live animals -20% Miscellaneous manufactured articles -30% 13% 17% Commodities not classified elsewhere -40% 15% Animal and vegetable oils Mineral fuels, lubricants Import countries, 1H20 Export countries, 1H20 Sources: GeoStat Sources: GeoStat Ukraine Other Other 6% 9% China has become the single 16% largest destination country for Armenia Ukraine EU countries Georgian exports in 1H20 with EU countries 6% a 13.6% share, as opposed to 5% 22% 24% 2.9% in 1H19 United States Turkey 5% 7% China Armenia Bulgaria 14% 6% Turkey 11% 17% Russia Azerbaijan Azerbaijan China 12% Russia 13% 7% 9% 11% Page 18 Prudent monetary policy ensures macro-financial stability
International reserves Monetary policy rate Sources: NBG Sources: NBG Reserve assets were $3.6 billion at the end of June, worth 4.3 14 3700 months of imports as of 1Q20 data, providing adequate cover 3700 12 NBG lowered the monetary policy rate to 8.0% at the beginning of August, as the demand 3200 3200 shock is expected to pull inflation down towards the target in the short to medium term 2700 2700 10 2200 2200 8.0 1700 1700 8 1200 1200 700 700 6 200 200 -300 -300 4 -800 -800
2
Jul-11 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Jan-08 Jan-15 Jan-04 Jan-05 Jan-06 Jan-07 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-03 0
Official Reserve Assets, US$ mln Net Foreign Assets, US$ mln
Feb-14 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19
Nonperforming loans to total gross loans, latest 2020 Monetary policy rate vs peers Sources: IMF Sources Central banks Lithuania 1.2% 30% End-2018 End-2019 Latest-2020 Hungary 1.5% Georgia 2.3% 25% Romania 3.9% 20% Poland 4.0% Latvia 15% 5.0% 9.50% Turkey 5.0% 8.25% 8.25% 7.75% 7.00% 10% 6.00% Belarus 5.3% 4.50% 4.50% 5% Armenia 5.5% Bulgaria 6.6% 0% Croatia 6.7%
Moldova 8.5% Russia
Turkey
Belarus
Ukraine Georgia
Kazakhstan 8.6% Armenia Azerbaijan Russia Kazakhstan 9.4% Page 19 Floating exchange rate - policy priority
Central Bank’s interventions Real effective exchange rate (REER) Sources: NBG Sources: NBG NBG sold $270mln in Mar-Jul 2020 on the foreign exchange market and 155 250 220 maintains a declaration of active intervention policy to provide liquidity 145 200 120 135 150 100 100 125 100 60 60 60 40 27 40 40 50 115 0 105 -50 -20 -40 -30 95 -100 -63 -80 -70 -85 85 -150 -120
-200 -140
Jul-08 Jul-15
Jan-05 Jan-12 Jan-19
Jun-04 Jun-11 Jun-18
Oct-06 Oct-13
Apr-17 Apr-03 Apr-10
Feb-09 Feb-16
Sep-09 Sep-16
Dec-07 Dec-14
Mar-06 Mar-13 Mar-20
Aug-05 Aug-12 Aug-19
Nov-03 Nov-10 Nov-17
May-07 May-14
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20
Jan-20 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19
Mar-15 Mar-14 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19
May-15 May-16 May-17 May-18 May-19 May-20 May-14 REER (Jan 2003=100) Linear (REER (Jan 2003=100)) NBG monthly net interventions US$ mn Exchange rate indices (1 January=100) Dollarization ratios Sources: NBG Source: NBG Both deposit and loan dollarization jumped in March on Flexible exchange rate regime plays a role as a shock-absorber the back of the pandemic and GEL depreciation, with deposit dollarization starting to decline immediately 130 USD/GEL USD/TRY USD/UAH USD/RUB 130 90 90 Loan dollarization Deposit dollarization 125 125 80 80 120 120
115 115 70 70 110 110 105 105 60 60 100 100 50 50 95 95 90 90
40 40
Jul-07 Jul-12 Jul-17
Jan-05 Jan-10 Jan-15 Jan-20
Jun-20 Jun-05 Jun-10 Jun-15
Oct-03 Oct-08 Oct-13 Oct-18
Apr-06 Apr-11 Apr-16
Feb-07 Feb-12 Feb-17
Sep-06 Sep-11 Sep-16
Dec-02 Dec-07 Dec-12 Dec-17
Mar-04 Mar-09 Mar-14 Mar-19
Aug-04 Aug-09 Aug-14 Aug-19
Nov-05 Nov-10 Nov-15
May-03 May-08 May-13 May-18 Page 20 Low public debt
Public debt Breakdown of public debt Sources: MOF Source: MOF, as of 30 April 2020
Low public debt ensures a strong position to borrow to fight the pandemic, with MoF expecting public debt to rise to around 55% 60% 60% 50% 50% 40% 40% Multilateral 57% 30% 30% Domestic External 20% 20% 21% 79% 10% 10% 0% 0% Bilateral
15%
2015 2010 2011 2012 2013 2014 2016 2017 2018 2019
2021F 2022F 2023F 2024F 2020F Eurobond 7% External public debt to GDP, % Total public debt to GDP, %
Overall Balance, % of GDP (GFSM 2001) Current vs Capital Expenditure, % of GDP Source: MOF Source: MOF 0% Capital expenditures reached record highs in 2019 and will prove key -3.0 -1.0% -1.3% -0.8% -0.7% in the fiscal stimulus, planned at GEL 3.5bln -2% -2.7% -3.0% -2.8% 30% 25.8% 22.6% 23.1% 23.2% 23.0% 22.7% -4.0% 25% 21.3% 21.0% -4% -4.8% 20%
-6% 15% 7.9% 7.0% 6.8% 10% 5.7% 6.4% 6.3% 5.8% 5.5% -8.3% -8% 5% 0% -10% 2017 2018 2019 2020F 2021F 2022F 2023F 2024F
Current Expenditures Capital Expenditures (Acquisition of Non-financial Assets)
2018 2014 2015 2016 2017 2019
2020F 2021F 2022F 2023F 2024F Page 21 Growth-oriented government reforms (2019-2020)
1 Structural Reforms 2 Promoting Transit & Tourism Hub
▪ Tax Reform ▪ Roads ▪ Favorable tax rates for SME development ▪ Plan to finish all spinal projects by 2020 – East-West Highway, other supporting infrastructure ▪ Special tax regimes for regional offices of multinational companies ▪ Rail ▪ Enhancing easiness of tax compliance ▪ Baku – Tbilisi Kars new railroad line ▪ Capital Market Reform ▪ Railway modernization and integration in international transport systems ▪ Boosting stock exchange activities ▪ Development of local bond market ▪ Pension Reform ▪ Introduction of private pension system ▪ PPP Reform ▪ Introduction of transparent and efficient PPP framework ▪ Public Investment Management Framework 3 Education ▪ Improved efficiency of state projects ▪ Law of Georgia on Entrepreneurs ▪ General Education Reform ▪ New law will be drafted reflecting requirements of Association Agreement between EU and ▪ Maximising quality of teaching in secondary schools Georgia ▪ Fundamental Reform of Higher Education ▪ Responsible Lending ▪ Based on the comprehensive research of the labour market needs ▪ Regulatory actions to support responsible lending ▪ Improvement of Vocational Education ▪ Decrease household over indebtedness ▪ Increase involvement of the private sector in the professional education ▪ Maximizing Government Effectiveness ▪ Modification of government support programs based on performance ▪ Association Agreement Agenda
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