On 24 February 2015, as a guest of the talk show, Archevani,

the Deputy Prime Minister of Georgia, Kakha Kaladze, stated that foreign factors, including the negative processes in Russia and Ukraine, have had a significant impact upon the devaluation of GEL.


verified the accuracy of the statement.

The depreciation of GEL started at the end of November 2014. Since 22 November until 9 December, GEL depreciated against USD by 11%.

The next wave of depreciation of GEL started from January 2015. In the first two months of this year, GEL dropped by 13.7% (25 tetri). FactCheck has already published an article on the causes behind the depreciation of GEL (see article).

Georgia has a floating exchange rate which means that the GEL exchange rate is determined upon the basis of supply and demand of USD. Georgia is dependent upon imports and demand of USD is high. The main sources of USD in the country are export, tourism, remittances and foreign investments.

From the beginning of the second half of 2014, Georgia’s export started to decline. The decrease of export, against the background of rising import, resulted in a deterioration of the current account deficit by 12%. The decrease of export started from August and dropped by 6.2% in the third quarter of 2014 and by 20.5% in the fourth quarter of 2014. Together with an increased current account deficit, some other components of the balance of payments slipped as well which caused a disproportionately high demand of USD. Revenues from tourism increased marginally by only 4%.[1]

Further, remittances from abroad decreased by 2% and, therefore, the available amount of USD in Georgia was not sufficient to meet the demand which was then reflected in the GEL exchange rate at the end of November. The depreciation of GEL was significantly affected by the deficit spending of the budget at the end of the previous year.

The economic processes throughout the region are said to be one of the reasons for the decrease of the total amount of USD available in Georgia. The economic growth rate dropped in the entire region of the Commonwealth of Independent States. According to the International Monetary Fund, the total economic growth rate of the CIS member states equals 0.75%. However, the rate of economic growth in 2014 varied within the different states. Turkmenistan (10.1%), Uzbekistan (7%) and Tajikistan registered the highest economic growth rates whilst the lowest economic growth rates were registered in Ukraine (-6.5%) and Russia (0.2%).

Slower economic growth in turn decreased domestic demand which was duly reflected upon the amount of import. Import fell by 5% in the CIS region in 2014. Georgia’s export markets are mostly CIS countries and, therefore, the economic process taking place in the CIS region affect Georgia as well. In 2014, Georgia’s export to CIS member states dropped by USD 155 million (9.6%)

Table 1:

CIS Member States Economic Growth Rate and Georgia’s Export (2014)

GDP Growth Rate

Share in Georgia’s Export

Georgia’s Export Growth Rate (USD million)

Georgia’s Export Growth Rate (%)

CIS Region




























































Sources: International Monetary Fund, National Statistics Office of Georgia  

Azerbaijan, Russia, Ukraine and Armenia are Georgia’s largest trading partners in the region. Throughout 2014, Georgia’s export decreased by 27.3% to Ukraine, by 8.6% to Armenia and by 23.3% to Azerbaijan. The annual growth of exports to Russia constituted 44% but started to decline from the second half and in the last quarter of 2014 and registering a 27% decline.

Export continued to drop throughout January 2015. The amount of goods exported to the CIS region was USD 58 million (51%) less as compared to the same period of the previous year. Exports to Russia dropped by 62%, to Ukraine by 77%, to Armenia by 52% and to Azerbaijan by 23%.

Russia’s economic difficulties were reflected upon remittances as well. Approximately 49% of the total remittances for Georgia are transferred from Russia. In 2014, remittances from Russia dropped by USD 92 million (11.5%) and remittances from Ukraine decreased by USD 15 million (32.4%). The total amount of remittances in January to February of this year dropped by USD 46 million (23%) whilst remittances from Russia dwindled by USD 43 million (44%).

Domestic factors, together with foreign factors, also contributed to the depreciation of GEL in December 2014 and in January 2015. FactCheck has already published an article

regarding that issue.


The economic growth rate in the CIS region shrank to 0.75% whilst import to the region dropped by 5%. More than half of Georgia’s exports are bound to CIS member states. Therefore, the low economic growth in those countries was reflected upon Georgia’s foreign trade.

Remittances to Georgia dropped by 2% in 2014 and by 23% in January to February 2015. Approximately 49% of remittances have been transferred from Russia. In 2014, remittances from Russia decreased by USD 92 million (11.5%) whilst remittances from Russia dropped by USD 43 million (44%) in January to February this year.

Even though the depreciation of GEL is largely determined by domestic factors (a decline in the economic growth rate, deficit spending of the budget in November to December 2014, a declining number of tourists due to stricter visa regulations, the reduction of foreign capital and contradictory statements of government officials), FactCheck

concludes that foreign factors are also playing a role in the depreciation of GEL starting from 2015.

Therefore, Kakha Kaladze’s statement is MOSTLY TRUE.


The National Bank of Georgia has data on the balance of payments only for the first three quarters of 2014.