In January 2017, in order to alleviate negative financial consequences following the fluctuation of the GEL exchange rate, the Government of Georgia decided to undertake measures to support larisation. This strategy, together with some additional measures, included the one-ff loan larisation programme which allowed citizens to convert their USD denominated loans to GEL with a GEL exchange rate of GEL 0.2 lower than the official figure with the difference being reimbursed as a subsidy from the state budget. The programme covered only those citizens who had taken loans before 1 January 2015 with immobile property as loan collateral. Additionally, the Government of Georgia decreed that since January 2017, loans in small amounts (up to GEL 100,000) would only be issued in the national currency.
Five months after the adoption of this programme, the Minister of Finance, Dimitri Kumsishvili, gave a talk about the programme and stated that as a result of measures undertaken within its framework, the dollarisation rate of loans dropped from 65% to 58% whilst the share of people’s loans in USD declined from 58% to 48%.
FactCheck verified the accuracy of the statement.
According to the data of the National Bank of Georgia, a total of GEL 17.5 billion in loans has been issued as of 1 January 2017. Of this amount, GEL 6 billion was issued in the national currency whilst GEL 11.5 billion or 66% of the total loan portfolio was issued in foreign currencies.
As of May 2017, the total amount of loans issued in the national economy decreased to GEL 17.2 billion. Of this amount, the volume of loans issued in GEL increased to GEL 6.8 billion whilst a number of loans issued in foreign currencies dropped to GEL 10.3 billion which constitutes 60% of the total loan portfolio. Of note is that the decrease in a number of loans issued in foreign currencies was partially affected by the GEL exchange rate.
At the beginning of January 2017, the USD to GEL exchange rate was set at 1:2.65 whilst the GEL appreciated at the beginning of May with the exchange rate newly set at 1:2.44. Therefore, the amount of USD denominated loans was USD 4.4 billion (GEL 11.5 billion) whilst USD denominated loans decreased by 2.4% by May 2017 to USD 4.3 billion (GEL 10.3 billion). Without the GEL appreciation impact, the loan dollarisation rate would be 62.3%.
In regard to housholds (individuals), the amount of loans issued for households was GEL 9.4 billion by January 2017. Of this amount, GEL 5.1 billion was issued in a foreign currency which according to the GEL to USD exchange rate amounts to USD 1.9 billion. However, the volume of loans issued in a foreign currency for May 2017 dropped to GEL 4.4. billion which amounts to USD 1.8 billion if calculated in USD. Therefore, the dollarisation rate for loans issued for households did indeed decrease from 54.4% to 47.2%. The Minister is right to state that the dollarisation rate has decreased although this happened largely because of the impact of the GEL appreciation.
As stated by Dimitri Kumsishvili, the decrease in the dollarisation rate is a result of the Government of Georgia’s measures supporting larisation. As we have already mentioned, the government adopted a set of measures in January 2017 which were to be undertaken within the larisation strategy. These measures included the conversion of USD denominated loans to GEL. Georgian citizens were allowed to use this option from 17 January to 24 March 2017. According to the report of the National Bank of Georgia, USD 80 million in loans was converted to GEL within the framework of the programme. However, in order to assess the programme’s effect, we have to see how the dollarisation rate of people’s loans with immobile property as loan collateral have changed (because the larisation programme covered only those people’s loans who had immobile property as collateral).
According to the data of the National Bank of Georgia, GEL 9.405 billion in loans was issued for Georgian resident individuals at the beginning of January 2017 with loans amounting to GEL 5.391 billion having immobile property as loan collateral. Of this amount, GEL 4.5 billion (83%) was issued in USD and the remaining 17% was issued in GEL. As of May 2017, the amount of people’s loans with immobile property as loan collateral was GEL 5.317 billion. Of this amount, the volume of loans issued in USD was GEL 3.396 billion (74.7% of the loan portfolio). It is true that after the one-ff loan larisation programme, the share of loans issued in GEL has increased in the total loan portfolio which is confirmed by the report of the National Bank of Georgia. Although, if we convert these figures to USD, we will see that the change is negligible. The amount of foreign currency issued loans for individuals decreased by USD 65 million in May 2017 as compared to January 2017. Therefore, together with the one-ff larisation programme, the GEL appreciation has also affected the decrease in the dollarisation rate.
In 2017, a one-off larisation programme was implemented with the aim of decreasing the dollarisation rate. According to the data of the National Bank of Georgia, this programme has to some extent facilitated a decrease in the dollarisation rate of the loan portfolio. In January-May 2017, the share of loans issued in USD dropped from 66% to 60%. The dollarisation rate of loans issued for individuals dropped from 54.4% to 47.2%.
However, of note is that the GEL exchange rate has appreciated vis-à-vis USD since January 2017. Therefore, not only the loan larisation programme but the GEL appreciation as well has affected the decrease in the dollarisation rate. Of additional mention is that the larisation level in the country depends upon trust towards the national currency. Therefore, in the long run, it is impossible to increase the larisation rate through artificial intervention if a stable and high economic growth rate is not achieved at the same time.
FactCheck concludes that Dimitri Kumsishvili’s statement is HALF TRUE.