Fitch has affirmed Georgia's long-term foreign and local currency issuer default rating (IDR) at 'BB-' with a stable outlook citing the country's large current account deficit, high level of external debt, low external liquidity, subdued per capita income and economic resilience as decisive factors. The rating also applies to the country's senior unsecured bonds. The short-term foreign and local currency rating was affirmed at 'B' and the country ceiling at 'BB", the ratings agency said on September 30.

The Georgian economy has been weathering a storm of external pressures to post GDP growth in excess of 2.5% in 2015 and so far in 2016. A flexible exchange rate, strong growth in tourism and recovering remittances are contributing to the adjustment in the external sector, the ratings agency wrote in a report. Fitch anticipates economic growth to the tune of 3.2% in 2016 driven by high government spending, tourism and the beginning of works on an oil and gas pipeline project.

Nevertheless, the country has run high current account deficits (CAD). In 2016, the CAD is expect to amount to 11.9% of GDP, while the average in countries within the same ratings category is 2.4% of GDP. While Tbilisi has also attracted above-average foreign direct investment (FDI) of 9.8% of GDP in 2016, the CAD is pushing up the already high external debt. Georgia's foreign debt is forecast at 66.9% of GDP at end-2016, compared to an average of 15.7% in other BB-rated countries.

Meanwhile, the fiscal deficit is expected to be the highest since 2010 this year, at 4.4% of GDP, primarily due to high social payments during an election year. A corporate tax reform that will come in force in 2017 should stimulate medium-term growth, Fitch writes, predicting that it will also push the fiscal deficit up to 4.9% of GDP by end-2017.

Georgian banks, in the meantime, have weathered the depreciation well, with non-performing loans (NPLs) at a manageable rate of 3.9% of total loan portfolio at end-July. A year earlier, NPLs accounted for 3.2% of total lending. Banks are well capitalised and positioned to absorb a moderate deterioration in their loan portfolios, the ratings agency concludes.