Paata Kvizhinadze: “Inflation remains within normal bounds, reserves are rising and the credit portfolio is expanding whilst the refinancing rate and the share of overdue loans are on the decline.”
Verdict: FactCheck concludes that Paata Kvizhinadze’s statement is HALF TRUE.
Paata Kvizhinadze addressed several key topics. Inflation has remained within the target range for the third consecutive year. Although consumer prices rose sharply – by 9.6% and 11.9% in two successive years in the post-pandemic period and following the onset of the Russia-Ukraine war, the inflation rate fell to 2.5% in 2023 and further to 1.1% in 2024. The slight rise in January-April 2025 brought inflation to 2.8% – a level that remains non-alarming.
The National Bank reserves increased in April; however, they remain lower as compared to the same period last year. Reserves also declined in 2024. The USD 591 million sold in October of last year raised suspicions that the regulator had “restrained the exchange rate” ahead of the elections. These concerns were further reinforced in November-December when the NBG refrained from intervening during the currency’s depreciation and instead began purchasing USD. Furthermore, the adequacy ratio also worsened beyond numerical decline, falling below the required threshold in 2023.
Although the credit portfolio expanded by 18% in 2024, this is not particularly noteworthy. Loan volumes have generally grown at double-digit rates with only a few exceptions.
The refinancing rate fell from 11% to 8% between 2023 and 2024 but has remained unchanged over the past year. Whilst the share of overdue loans has also declined as compared to the pre-pandemic period, the downward trend halted in 2022.
The suspended programme with the International Monetary Fund (IMF) was notably omitted from the comprehensive overview. Considering that some of the information presented was accurate, some – misleading, in addition to several key facts being overlooked, FactCheck concludes that Paata Kvizhinadze’s statement is HALF TRUE.
Analysis
When assessing the National Bank of Georgia’s (NBG) report, Paata Kvizhinadze stated: “Why do we support the National Bank’s 2024 report? Inflation has remained within the normal bounds for several years and even dropped below it. Foreign exchange reserves are increasing month by month, including in April. Refinancing loans are declining, albeit slightly. Relations with international organisations remain normal. So-called bad loans are decreasing. Moreover – and this is likely of particular interest to our committee – financing of the economy has grown by 17% with banks serving as the primary source of this financing.”
Paata Kvizhinadze addressed several key topics, beginning with inflation. The primary objective of the NBG (Article 3, Paragraph 1) is to ensure price stability. Although the inflation target is set at 3%, it does not need to be exact – levels around 3.5% are acceptable whilst 10% is not.
The rate of price increases significantly accelerated following the pandemic. Inflation reached 9.6% in 2021 and 11.9% in 2022. Furthermore, whilst inflation in 2022 posed challenges to many countries worldwide – particularly across Europe, where consumer prices rose faster than Georgia in six EU countries – the causes of inflation in 2021 were more localised. Georgia experienced higher price growth as compared to many other countries during that year, surpassing the trends observed in 2022.
The inflation rate dropped sharply to 2.5% in 2023, followed by a further decline to 1.1%. Inflation rose slightly during January-April 2025 but remained unalarming with consumer prices increasing by 2.8% as compared to the same period the previous year. Notably, inflation in 2023-2024 not only decreased as compared to earlier years but also remained lower than in most European countries.
When calculating inflation, the greatest weight is given to changes in prices for food and non-alcoholic beverages. The price growth rate for this entire category in 2024 constituted 0% (reflecting stability across the entire group rather than changes in the 96 individual products it comprises).
Statistical data suggest that inflation has remained within the target range for the third consecutive year and is no longer a significant concern for the country, including its most vulnerable populations.
Graph 1: Average Annual Inflation Rates
Source: National Statistics Office of Georgia
The second point highlighted by Paata Kvizhinadze concerned foreign exchange reserves. Unlike inflation, the situation with reserves is less favourable. Whilst reserves increased by USD 200 million to USD 4.5 billion in April as compared to March, they were still USD 300 million less than the same period last year and remain USD 900 million below the record levels seen in July-August 2023. The claim that reserves have been on a constant recent growth is not entirely accurate as they actually fell by USD 200 million in February as compared to January.
Even when individual fluctuations are disregarded, average reserve levels for 2024 lag behind those of 2023 as well as those recorded in January-April 2024 and January-April 2025.
Graph 2: Average Levels of Foreign Exchange Reserves (USD Million)
Source: National Bank of Georgia
Foreign reserves fluctuated within the range of USD 4.6-4.8 billion from January to September of last year. Reserves fell by over USD 200 million in April-May amidst the adoption of the so-called Russian law and widespread protests. However, this decline was offset by an increase in July-August. A pre-election drop of USD 628 million in October market the largest decline – the largest portion of which, USD 591 million, was sold through a foreign exchange auction and on the Bmatch platform.
Notably, no further foreign exchange auctions have been held following the parliamentary elections. Instead, USD 134 million was purchased on the Bmatch platform in November-December during a period when the GEL exchange rate against the USD exceeded 2.8. These events reinforced suspicions that the regulator had implemented a so-called rate clampdown in October for political objectives.
Graph 3: Foreign Exchange Reserves (USD Million)
Source: National Bank of Georgia
Reserves rose sharply by USD 324 million in December. The main driver of this increase was the tightening of regulations for commercial banks. The NBG raised the minimum reserve requirement for foreign currency-denominated funds by five percentage points – from 10%-20% to 15%-25%.
An important measure for assessing reserves beyond the absolute level is the adequacy ratio which indicated how well the existing reserves can withstand potential shocks.
The IMF evaluates reserve adequacy using its own methodology calculated with the following formula: ARA Metrics = 5% × exports + 5% × broad money + 30% × short-term debt + 15% × other liabilities. An adequacy ratio between 100% and 150% is considered desirable.
The NBG has struggled to meet the aforementioned benchmark since 2015. The only exceptions were 2020-2021 when reserves surged due to increased external borrowing. The adequacy ratio fell to 96% in 2022, further to 90% in 2023 and finally to 74% in 2024.
Another measure of reserves is the import coverage ratio. It assesses whether reserves are sufficient to cover the expected imports for the next three months. This benchmark was consistently met during the Georgian Dream’s governance until 2023 (except for 2014) when the ratio fell to 2.72. Although the World Bank has not yet published data for 2024, this indicator has likely deteriorated further given the increase in imports and the decline in reserve levels.
When Paata Kvizhinadze referred to refinancing loans, he likely meant a decrease in the refinancing rate (monetary policy) given the context, rather than a reduction in the volume of loans issued by the NBG to commercial banks – figures which fluctuate weekly based on demand.
The monetary policy rate constituted 9% prior to the pandemic (having increased from 6.75% in 2019). It was lowered to 8% in 2020, during the initial phase of the pandemic, but soon rose again, reaching 10.5%. The rate was raised to 11% following Russia’s invasion of Ukraine and remained at that level for over a year until May 2023. It began to gradually decline from that point, eventually reaching 8% in May 2024. Although eight Monetary Policy Committee meetings have been held over the course of a year since then, the refinancing rate has remained unchanged. The NBG attributes this caution to risk mitigation, suggesting that loosening the monetary policy and boosting lending could trigger inflationary pressures.
Graph 4: Monetary Policy Rate
Source: National Bank of Georgia
The meaning behind the phrase “normal relations with international organisations” remains unclear. Paata Kvizhinadze did not specify the organisations to which he was referring or what type of relationship he considered “normal.” Currently, on one hand, forecasts indicate strong economic growth; on the other, the IMF programme remains suspended and credit rating agencies have downgraded their outlook. FactCheck excluded this part of the statement from its assessment due to this ambiguity and it did not influence the final verdict.
“Bad loans” refer to loans overdue by 90 days or more. Their share in the total credit portfolio stood at 1.2% in 2024, the same as in 2023. This figure was 1.7% in 2019, before the pandemic, and 2.2% in 2017.
Graph 5: Share of Overdue Loans in the Credit Portfolio of Commercial Banks
Source: National Bank of Georgia
The NBG – backed by Parliament – tightened monetary policy by introducing stricter lending regulations both before and after the pandemic. Mandatory limits were imposed based on borrowers’ income: for example, a low-income borrower with a disposable income of GEL 1,000 could take out a loan only if the monthly payment did not exceed GEL 250. Moreover, foreign currency lending was also restricted, with a minimum threshold initially set at GEL 100,000 and gradually raised to GEL 500,000. Whilst commercial banks already had internal controls in place, these measures became binding. The tightening of regulations was a key factor in reducing the share of overdue loans. Notably, the impact was even more pronounced in non-bank lending. The reduction of annual effective interest rate cap – first to 100% and then to 50% – effectively pushed online lending companies out of the market.
Regarding the 17% increase in lending, this is indeed accurate but not particularly noteworthy. Lending has grown at double-digit rates nearly every year, with few exceptions, including under the administrations of Koba Gvenetadze and Giorgi Kadagidze.
Loan volume data has been available on the NBG’s website since December 2002. The statistics indicate that credit portfolio growth fell below 18% only four times whilst negative growth was observed only once – in 2009 – out of the 22 recorded years.
Graph 6: Credit Portfolio Growth Rate of Commercial Banks (December vs. December of the Previous Year)
Source: National Bank of Georgia
Overall, the claim made by Paata Kvizhinadze regarding the reduction in inflation is accurate. Inflation has remained close to the target level for three consecutive years and is amongst the lowest in Europe. It is also true that the refinancing rate has been reduced; however, it has remained unchanged at 8% over the past year. His assertion about foreign exchange reserves is inaccurate. Reserves have declined as compared to the same period last year with the declining trend observed in 2024 as well. Furthermore, the reserve adequacy ratio has fallen below the recommended threshold. Whilst the share of overdue loans has decreased relative to the pre-pandemic period, this trend stalled in 2023-2024. There was a 18% increase in the credit portfolio, although such double-digit growth has been typical in most previous years. Notably, Kvizhinadze failed to mention the suspension of the IMF-supported programme, which was halted in 2023, primarily due to the government’s failure to implement structural reforms in the NBG (the number of non-executive board members should exceed that of executive members; currently, the NBG is largely controlled by its president) and reforms related to the governance of state-owned enterprises.
The suspended programme with the International Monetary Fund (IMF) was notably omitted from the comprehensive overview. Considering that some of the information presented was accurate, some – misleading, in addition to several key facts being overlooked, FactCheck concludes that Paata Kvizhinadze’s statement is HALF TRUE.
