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Bidzina Ivanishvili: “Georgia is one step away from receiving the highest credit rating and only two steps away from receiving an investment rating.”

Verdict: FactCheck concludes that Bidzina Ivanishvili’s statement is MOSTLY TRUE.

Resume: A credit rating gives investors information about the risk factors associated with investments in certain countries as well as the reliability of these countries. Dozens of agencies publish credit ratings although Standard & Poor’s (S&P),Moody’s and Fitch are the most influential and famous among them. Each credit rating agency employs its own methodology although basic indicators are the same and include economic indicators as well as a country’s domestic and foreign policies, regional processes and the environment. Fitch granted Georgia a BB rating with a negative outlook on 24 April 2020, Standard & Poor’s did the same on 10 October 2019 and Moody’s Ba2 with a stable outlook was given on 11 September 2017. Of note is that Fitch downgraded Georgia’s credit outlook from stable to negative in April 2020 amid the global pandemic. All three companies have granted fundamentally similar assessment ratings to Georgia and, therefore, they conclude that there are certain speculative risks in Georgia’s economy. However, Fitch gives Georgia a negative outlook. Accordingly, in case of Fitch, Georgia is three steps away to achieve an investment grade whilst only two steps are needed according to S&P and Moody’s.

Analysis

The report published by the Georgian Dream, which is attached to Bidzina Ivanishvili’s letter on quitting politics, includes the following statement: “Georgia is one step away from receiving the highest credit rating and only two steps away from receiving an investment rating.”

Countries compete in the world economy to attract foreign capital. Developing or less developed nations, which have their own limited resources, are particularly dependent upon foreign capital. In turn, creditors and investors make their choices by taking the rate of return and stability into account. In other words, they make calculations vis-à-vis possible profits and risks. The lower the risks (higher reliability), the lower the rate of return for the creditor or investor of the capital in exchange for which he is ready to invest his money in the country. A credit rating gives investors information about the risk factors associated with investments in certain countries as well as the reliability of these countries. Dozens of agencies publish credit ratings although Standard & Poor’s (S&P), Moody’s and Fitch are the most influential and famous among them. Each credit rating agency employs its own methodology although basic indicators are the same and include economic indicators as well as a country’s domestic and foreign policies, regional processes and the environment.

Standard & Poor’s and Fitch employ similar assessment systems: AAA is the highest rating in their assessment which is followed by AA+, AA, AA- above average – A+, A, A-, below average – BBB+, BBB, BBB-, non-investment grade speculative – BB+, BB, BB-, speculative B+, B, B-, highly vulnerable CCC, on the verge of bankruptcy CC and default D. Moody’s assessment is also similar but instead of +/- it uses digits: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa4, Ba1, Ba2, Ba3, B1, B2, B43, Caa1, Caa2, Caa3, Ca and C. Assessment levels in turn are divided into investment and non-investment grades. Table 1 shows the economic interpretation of these assessments

Table 1: Assessments of Moody’s, S&P and Fitch and Interpretation of the Assessments

Source: https://www.bankersalmanac.com/addcon/infobank/credit_ratings/standardandpoors.aspx

Fitch granted Georgia a BB rating with a negative outlook in April 2020 when the credit outlook was downgraded amid the pandemic from stable to negative and affirmed it in August 2020. In turn, Georgia’s credit outlook was downgraded from stable to negative in April amid the pandemic. Standard & Poor’s kept a BB stable outlook for Georgia whilst Moody’s Ba2 stable assessment was unveiled on 11 September 2019. Georgia’s assessment grades are fundamentally the same for each of these companies and, therefore, they conclude that speculative risks persist in the Georgian economy.

Table 2: Georgia’s Assessment Dynamic in 2005-2019

Source: https://tradingeconomics.com/georgia/rating

Fitch granted Georgia a BB rating with a negative outlook on 24 April 2020, Standard & Poor’s did the same on 10 October 2019and Moody’s Ba2 with a stable outlook was given on 11 September 2017. Of note is that Fitch downgraded Georgia’s credit outlook from stable to negative in April 2020 amid the pandemic. All three companies have granted fundamentally similar assessment ratings to Georgia and, therefore, they conclude that certain speculative risks persist in the Georgian economy. However, Fitch gives Georgia a negative outlook. Accordingly, in the case of Fitch, Georgia is three steps away to achieve an investment grade whilst only two steps are needed in the case of S&P and Moody’s.