The depreciation of GEL remains among the most serious problems. The exchange rate of GEL with regard to USD exceeded GEL 2 in recent days. According to the National Bank of Georgia, the exchange rate of GEL with regard to USD will reach 2.15 by 20 February 2015. The representatives of the Government of Georgia believe that external factors are the main causes of the depreciation of the national currency. On 16 January 2015, during his interview on Rustavi 2, the Minister of Economy and Sustainable Development of Georgia, Giorgi Kvirikashvili, stated the decrease in oil prices and the subsequent problems in the region to be among the causes of the depreciation of GEL.

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about the issue of currency depreciation earlier as well. Georgia has a floating exchange rate which means that the changes in the rate depend upon the ratio of GEL to USD and supply and demand. Export of goods and services, foreign investments and money transfers are the main sources of foreign currency for Georgia.

According to the data of the International Monetary Fund (IMF), the growth rate of the economies in the region has, indeed, decreased. Ukraine (-6.5%), Russia (0.2%) and Moldova (1.8%) had the lowest growth rates in the region. High economic growth was observed in Tajikistan (6%), Uzbekistan (7%) and Turkmenistan (10.1%). The economic growth rate in the rest of the countries varied from 3% to 4%. According to the report

of the International Monetary Fund, the decrease in investments and geopolitical factors were the main reasons for the slow economic growth in the region. However, the changes in oil prices also had an influence upon the growth rates of the economies.

The decrease in oil prices affects oil-importing and oil-exporting countries differently. The decrease in prices reduces revenues from sales which has a negative influence upon oil-exporting countries. The effect of the decrease in oil prices varies according to the level of dependence upon the revenues from oil exports.

Azerbaijan, Russia, Turkmenistan, Kazakhstan and Uzbekistan are the main oil-exporting countries of the region. The most significant decrease in economic growth was registered in Russia and Azerbaijan which are Georgia’s major trading partners.

The economic processes in an oil-exporting country might negatively influence its trading partners as well as possibly decreasing external trade and investments.

Table 1: 

Changes in the GDPs of Oil-Exporting Countries of the Region and Export from Georgia (2014)

	Share of Oil Revenues in GDP[1]	Economic Growth	Share in Georgian Exports	Growth of Export (USD Million)	Growth of Export
CIS Countries	-	-	51%	-155.5	-10%
Azerbaijan	36%	4.5%	19%	-165.5	-23%
Russia	14%	0.2%	10%	84.3	44%
Kazakhstan	25%	4.6%	3%	-15	-15%
Turkmenistan	21%	10.1%	1%	0.2	1%
Uzbekistan	3%	7%	2%	31.8	140%

Source: World Bank, National Statistics Office of Georgia

The direct effect of a decrease in oil prices on oil-importing countries is positive as it reduces the expenses on oil purchases and positively influences the trade balance as well.

Georgia’s export to Azerbaijan decreased by 23% in 2014 which is mainly due to the enactment of the Euro 4

standard in Azerbaijan. However, since Azerbaijan’s economy is heavily dependent upon oil revenues, the decrease in oil prices had a negative influence upon Azerbaijan’s economic growth, thereby reducing its internal demand as well.

Despite the decrease in economic growth in Russia, exports from Georgia to Russia increased by 44% (USD 84 million). The growth of export to Uzbekistan was also very high. Export from Georgia to Uzbekistan increased by USD 32 million (140%) in 2014.

The economic situation in the region also influences the influx of investments and money transfers which are the sources of foreign currency. The amount of investment from the Commonwealth of Independent States increased three times in the first three quarters of 2014. Investments from Azerbaijan (382%) and Russia (565%) increased significantly. As for the rest of the countries, the share of their investments in the amount of foreign direct investments in Georgia is so small that their decrease could not have influenced the exchange rate of GEL.

Table 2:

 Direct Investments from Oil-Exporting Countries in 2014

	Economic Growth	Share in Foreign Direct Investments	Growth of Foreign Direct Investments (USD Million)	Growth of Foreign Direct Investments
CIS Countries	-	29%	196.6	288%
Azerbaijan	5%	24%	173.2	382%
Russia	0%	6%	66.5	565%
Kazakhstan	5%	-0.4%	-19.7	-124%
Turkmenistan	10%	0%	-0.4	0
Uzbekistan	7%	0.07%	0.7	2,477%

Source: National Statistics Office of Georgia

As for the money transfers, a total of USD 1,441 million was transferred to Georgia in 2014 which is USD 36 million (2.4%) less than in 2013. A total of 49% of the money transfers to Georgia come from Russia and the money transfers from Russia decreased by 11.5% (USD 92 million) in 2014 as compared to the previous year. Hence, the on-going processes in Russia did, indeed, influence the money transfers to Georgia.

Table 3: 

Money Transfers and their Share

Money Transfers (USD Thousand)	2013	2013 (Share)	2014	2014 (Share)	Change
Overall	1,477,020		1,440,754		-2.5%
Russia	801,428	54.3%	709,238	49.2%	-11.5%
Kazakhstan	16,077	1.1%	17,581	1.2%	9.4%
Uzbekistan	2,724	0.2%	3,883	0.3%	42.5%
Turkmenistan	259	0.01%	330	0.02%	27.4%
Azerbaijan	14,964	1%	17,790	1.2%	18.9%

Source: National Bank of Georgia

Oil products occupy the biggest share of Georgia’s imports (11%). The decrease in oil prices reduces the expenses on oil products from Georgia, positively influencing the external trade balance. In addition, since oil is a production factor, the decrease in its prices influences the prices of final products as well. Hence, the decrease in oil prices should have influenced Georgia’s economy and the exchange rate of GEL positively, rather than negatively.

Conclusion

The growth rate of the economies in the region did, indeed, decrease in 2014. From the oil-exporting countries of the region, Georgia has its closest economic ties with Russia and Azerbaijan. It should be pointed out that despite the decrease in economic growth, exports from Georgia to Russia have increased by 44% whilst the investments from Russia increased 5.7 times. Investments from Azerbaijan have also increased (3.8 times). As for the decrease in exports to Azerbaijan, this is mainly due to the new regulations about motorcars. It should be noted that the share of other oil-exporting countries of the region in Georgia’s foreign direct investments and external trade is so small that the economic processes in these countries could not have influenced the exchange rate of our national currency.

However, there definitely is a danger of external factors seriously influencing the exchange rate of GEL. The President of the Central Bank of Azerbaijan announced

several days ago that they are preparing to drop the currency peg to USD and change it to the floating exchange rate as the decrease in oil prices damages the country’s economy. The floating exchange rate will cause Azerbaijan’s national currency to depreciate with regard to other currencies which might reduce the investments, export and money transfers to Georgia from Azerbaijan.

Based upon the factors analysed in the article, FactCheck concludes that Giorgi Kvirikashvili’s statement is MOSTLY FALSE.