While national currencies in the region are slowly stabilizing, the Georgian Lari continues to plummet. Analysts say the problem is not the depreciation of the lari as such, but the sheer speed of it. In April alone, the lari dropped by 5 percent, slipping from 2.23 GEL per 1 USD to 2.33. The most alarming fact about this occurrence is that almost 4 percent of this figure fell into a ten-day period, starting with April 24. In total, Georgian currency has depreciated by 30 percent since November of 2014.

Another piece of bad news is that the lari seems to be completely unconcerned with optimistic assurances of the Georgian government, who claim that there is no reason for further depreciation.

“The lari will stabilize soon,” stated Giorgi Kvirikashvili, Minister of Economic Development of Georgia, on April 24. The next day the currency dropped by more than 1 percent. To alleviate the situation, the National Bank of Georgia intervened on April 28 with 40 million USD. Nevertheless, the lari lost 2 tetri on the same day.

The Georgian government keeps insisting the reason for this is purely external and was caused by the economic crises in Russia and Ukraine [two key export markets to Georgia] that had a spillover effect on the entire CIS space. As a consequence, key foreign currency sources such as money transfers, export and foreign direct investment, have dwindled in Georgia. On the other hand, the U.S. dollar keeps getting stronger and stronger.

On May 4, Kvirikashvili reiterated that the government does not expect further depreciation of the lari, since plenty of preventive measures were undertaken: privatization is going ahead and the tourism season is approaching, which means foreign currency is pouring into the country.

But businessmen and economic analysts do not share his optimism. They worry that the lari is going through a crisis and one of the major reasons for this are discordant and incongruent actions of the Georgian government and the National Bank. Businessmen complain that it gets harder and harder to forecast the lari’s exchange rate, which hampers business planning and paralyzes economic activity. The Business Association of Georgia even appealed to the government to remain in close communication with the NBG.

Lia Eliava, a financial analyst, fears that the lari will continue dropping further because the economy is stagnating. She thinks the NBG interventions can no longer help, since the economic situation in general has become too feeble.

“The currency depreciation has dealt a serious blow to the economy and the depreciation we are experiencing now is an aftershock of this blow,” Ms. Eliava explains. “The panic factor, the reduction in purchasing power and the demand as well as the stagnation of the real estate market are the key reasons of the lari’s sad tale. And no amount of tourism or privatization plans can alleviate the situation. These two things are insufficient to balance out the reduced exports and the stagnating economy.”

Vakhtang Charaia, Economic Director of the Center for Analyze and Prognosis, claims that the currency devaluation picture that is currently underway is not going in accordance to the classic scenario. He fears that if the lari continues to lose its value at the current speed, the situation may lead to a full-blown financial crisis.

“We face a very serious problem. As an economist, I cannot say this is a classic currency crisis. A crisis occurs only when currency depreciates by 30 percent within three months, which is not the case right now. The lari stands at around 2.30 against dollar, and if this rate is maintained, the tragedy can be avoided. The problem is its constant depreciation. If this goes ahead at the current rate, a financial crisis may appear on the horizon, with all that it entails,” he explains.

Author: Nino Patsuria