GEL Performance in 2023
The GEL has shown resilience in 2023, despite the challenging geopolitical context and the ongoing Covid-19 pandemic. The currency has appreciated by 2.4% against the USD and by 1.8% against the EUR since the beginning of the year, as of December 27, 2023. The GEL has also outperformed most of its regional peers, such as the Turkish lira, the Russian ruble, and the Ukrainian hryvnia.
The stability of the GEL is driven by strong fundamental factors, such as:
- Robust economic growth, which is expected to reach 7.5% in 2023, according to the International Monetary Fund (IMF).
- Healthy fiscal parameters, with the budget deficit narrowing to 3.5% of GDP and the public debt declining to 54.8% of GDP in 2023, according to the Ministry of Finance of Georgia.
- High foreign exchange inflows, supported by the recovery of tourism, remittances, and foreign direct investment (FDI).
GEL Outlook for 2024
According to Galt & Taggart’s forecast, the GEL will continue to enjoy stability against the USD and the EUR in 2024, with the average value of GEL against USD expected to be within 2.7 and the average value of GEL against EUR expected to be around 3.1. The forecast is based on the following assumptions:
- The global economy will grow by 4.9% in 2024, according to the IMF, with the US and the eurozone expanding by 3.5% and 2.2%, respectively.
- The US Federal Reserve will raise its policy rate by 75 basis points in 2024, while the European Central Bank will keep its policy rate unchanged at 0%.
- The oil price will average $75 per barrel in 2024, according to the World Bank, slightly lower than the average of $77 per barrel in 2023.
- The Georgian economy will grow by 5.5% in 2024, according to the IMF, with the inflation rate averaging 3%, within the target range of the National Bank of Georgia (NBG).
- The NBG will maintain its policy rate at 9.5% in 2024, after raising it by 200 basis points in 2023 to contain inflationary pressures.
- The current account deficit will widen to 8.5% of GDP in 2024, from 7.5% of GDP in 2023, due to the increase in imports and the slowdown in exports.
- The net FDI inflows will increase to 8% of GDP in 2024, from 7% of GDP in 2023, reflecting the improvement in the business environment and the implementation of major infrastructure projects.
GEL Challenges and Opportunities
The GEL faces some challenges and opportunities in the medium term, which could affect its exchange rate dynamics. Some of the key factors to watch are:
- The political stability and the reform agenda of the Georgian government, which could influence the confidence of domestic and foreign investors and the ratings of international credit agencies.
- The Covid-19 situation and the vaccination progress, which could affect the recovery of the tourism sector and the mobility of the population.
- The regional developments and the relations with neighboring countries, especially Russia and Turkey, which could have an impact on the trade, transit, and security of Georgia.
- The diversification and competitiveness of the Georgian economy, which could enhance its resilience to external shocks and reduce its dependence on imports and remittances.
Galt & Taggart is a leading investment company in Georgia, offering a wide range of services, such as corporate finance, research, asset management, brokerage, and wealth management. The company is a subsidiary of the Bank of Georgia Group, the largest banking group in the country.
