Russia Imposes Sanctions on Georgia Affecting Trade and Currency
Following political unrest, Russia has banned flights and imposed trade sanctions on Georgia. These measures are impacting the Georgian economy, weakening the national currency.
Russia has implemented flight bans and trade sanctions against Georgia in response to violent unrest in Tbilisi after a Russian legislator appeared in the Georgian parliament. Analysts suggest these measures will have a significant impact on the Georgian economy.
The Georgian lari (GEL) has depreciated following the Russian sanctions. The currency has lost 4% of its value against the US dollar since the sanctions were imposed and 8% since the beginning of the year. While the sanctions are expected to reduce Georgian export growth, they are not anticipated to cause a balance of payments crisis in the short term.
Georgia's current account deficit narrowed from -7.9% of GDP for the full year 2018 to -6.2% in the first quarter of 2019. This deficit was fully covered by net foreign direct investment inflows, with an average coverage rate of 82% between 2014 and 2018.
However, the sanctions are projected to affect Georgia's GDP growth and inflation. The full-year GDP growth forecast for 2019 is 4.5%, following 4.7% in 2018. Inflation rose to 4.3% year-on-year in June, up from 1.5% in December 2018. The current account deficit is expected to widen again to -8.4% of GDP for the full year 2019, with public and external debt ratios remaining substantial.