The Georgian lari (GEL) has been gaining strength against the US dollar (USD) and the euro (EUR) in recent days, reaching new highs in 2023. According to the latest data from the National Bank of Georgia, as of January 9, 2024, one USD was worth 2,6879 GEL, while one EUR was worth 2,9408 GEL. This means that the lari has appreciated by about 0.1% against both currencies since December 28, 2023.
What are the factors behind the lari’s rise?
There are several factors that may have contributed to the lari’s appreciation against the USD and the EUR. Some of them are:
- The improvement of Georgia’s economic situation after the COVID-19 pandemic. The country has been able to contain the spread of the virus and resume its normal activities, thanks to its effective vaccination program and strict health measures. The country’s GDP grew by 5.6% in 2023, while its inflation rate remained low at 1.2%.
- The increase of foreign investment in Georgia’s economy. The country has been attracting more foreign investors who are interested in its strategic location, natural resources, and business opportunities. According to the World Bank, Georgia received $1.2 billion in foreign direct investment (FDI) in 2023, an increase of 25% compared to 2022. Some of the major FDI projects in Georgia include a $500 million oil refinery by TotalEnergies, a $300 million solar power plant by EDP Renewables, and a $200 million logistics hub by Amazon.
- The strengthening of Georgia’s currency peg to the USD and the EUR. The National Bank of Georgia has maintained a fixed exchange rate regime for its currency since August 2018, when it replaced it with a floating one for a brief period due to high inflation and currency depreciation. The central bank has been intervening in the foreign exchange market to keep the lari within a narrow range around its peg level of around 2.7 GEL per USD and around 2.9 GEL per EUR. This helps to preserve confidence in the lari and prevent excessive volatility.
What are the implications for Georgians?
The appreciation of the lari against other currencies may have some positive and negative implications for Georgians.
On one hand, it may benefit Georgians who have foreign assets or debts denominated in USD or EUR. For example, if they have savings or investments in these currencies, they can convert them into GEL at a favorable rate and increase their purchasing power.
On another hand, it may hurt Georgians who import goods or services from abroad or travel abroad for tourism or business purposes. For example, if they buy goods or services from countries that use USD or EUR as their currency, they will have to pay more GEL for them due to higher exchange rates.
Moreover, it may affect Georgians who have loans or mortgages denominated in USD or EUR. For example, if they have borrowed money from banks or other lenders using these currencies as collateral or repayment currency, they will have to pay more GEL for their debt obligations due to higher exchange rates.
Therefore, Georgians should be aware of how their income and expenses are affected by changes in exchange rates and plan accordingly.
The Georgian lari has been appreciating against other major currencies such as USD and EUR in recent days due to various economic factors such as improved growth prospects, increased investment inflows, and strengthened currency pegs. However, this may also have some implications for Georgians such as reduced competitiveness for exports and imports as well as increased debt burden for borrowers.
