The National Bank of Georgia purchased USD 1.3 billion worth of foreign reserves, yet the stock increased by only USD 570 million. Whilst exceeding USD 5 billion in July for the first time since November 2023, reserves still fell USD 417 million short of the record high. Furthermore, reserve adequacy remains below the recommended level despite the nominal rise.
International reserves denominated in foreign currency serve to cushion external shocks, provide liquidity and ensure the government can smoothly meet its foreign currency obligations during financial crises. Managing reserves is one of the National Bank’s functions (Organic Law of Georgia on the National Bank, Article 3).
Reserves may be accumulated or reduced through multiple channels. Direct purchases or borrowing increases the volume of reserves whilst debt repayments and foreign exchange interventions reduce their volume.
Dollar purchases and sales are conducted through foreign exchange auctions and the Bmatch platform. Information on auctions is released on the same day whereas Bmatch data is published only on the 25th of the following month. No foreign exchange auctions were held from January to July 2025 and all reserves were purchased via the Bmatch platform.
Whilst trading on auctions and the Bmatch platform significantly affect reserve levels, it is not strictly in a proportional manner. The National Bank had to sell a total of USD 873 million at auctions in 2020, amidst the pandemic and COVID regulations, yet reserves still grew by USD 400 million – from USD 3.5 billion to USD 3.9 billion. The aforementioned increase under these interventions was driven by a rise in external debt.
The opposite occurred in 2025. Reserves rose by only USD 570 million despite USD 1.3 billion in dollar purchases due to debt repayments and substantial delays in taking over debt. The gap between these two figures constitutes USD 730 million.
Graph 1: Reserves Purchased and Nominal Reserve Growth, January-July 2025 (USD Million)
Source: National Bank of Georgia
Although external debt was planned to increase by USD 796 million, it grew by only USD 377 million in reality, falling short by USD 419 million. The plan was nearly fully executed on the repayment side with USD 684 million paid out of the planned USD 689 million. Whilst the Treasury has published seven-month execution data, plans are only set quarterly, making it challenging to determine the percentage of the plan that was fulfilled.
Lower-than-planned borrowing is one reason growth in reserves lagged behind purchases – but not the only one. Domestic government conversion or depreciation of the currency in which part of the reserves were held may have also contributed. Changes in gold prices had a positive impact, increasing reserves by USD 158 million.
Despite reserves rising by USD 570 million in the first seven months of the current year, they remain far from record levels. Reserves exceeded USD 5.4 billion in July-August 2023.
Reserves are not measured by alone. Considering the scale of the economy and trade, the adequacy ratio is also important, calculated by the IMF’s methodology.
It is computed as: ARA Metric = 5% × Exports + 5% × Broad Money + 30% × Short-Term Debt + 15% × Other Liabilities. Ideally, the adequacy ratio should be in the 100-150% range.
The National Bank has been unable to meet the reserve adequacy ratio since 2015. The exception was 2020-2021 when the reserves grew substantially due to large-scale external borrowing. The adequacy ratio fell to 96% in 2022, 90% in 2023 and 74% in 2024. The 2025 forecast stands at 79% – an improvement over 2024 but still well below the recommended level.
Graph 2: Reserve Adequacy Ratio
Source: International Monetary Fund
Another measure of reserves is the import coverage ratio, comparing reserves to expected imports over the next three months. This ratio was met until 2023 (except in 2014) during the Georgian Dream’s governance. It fell to 2.72 in 2023 and to 2.33 in 2024. Considering that reserve growth is currently outpacing import growth (reserves went up b 12.8%, whilst imports – by 10.8%), the ratio is expected to improve slightly but not significantly.
Graph 3: Reserve Adequacy Ratio by Import Coverage Ratio
Source: International Monetary Fund
Fitch ratings also gave a negative assessment of Georgia’s reserves last year. The country’s foreign currency reserves remain below the level of other BB-rated nations. Georgia’s National Bank reserves cover 2.6 months of external payments as of 2024 whilst reserves in other BB-rated countries average 4.7 months of external payments, according to Fitch assessment. Whilst the situation has improved slightly since then, it has not been enough to match the BB-rated peer average.
From the perspective of reserve accumulation, 2024 was particularly negative. Reserves fell by USD 295 million between January and October 2024. The rate of decline was uneven month to month. Reserves dropped by USD 214 million in May amidst the large-scale protests against the Russian law. Conversely, their volume increased by a total of USD 258 million in July-August. Later, the one-month decline reached a record of USD 627 million ahead of the parliamentary elections in October. Whilst reserves rose significantly by USD 325 million in December, much of this increase came from a legislative change that raised the required reserve ratio on foreign currency deposits of banks by five percentage points. This was more of a technical growth than a real one.
Foreign exchange interventions were also uneven. The National Bank sold USD 591 million in October (USD 213 million at auctions and USD 378 million on the Bmatch platform), keeping the exchange rate against the USD within 2.72-2.73. However, when the average rate reached 2.80 and at one point 2.85 in December, the Bank made a USD 29 million purchase instead.
Overall, whilst the National Bank did acquire USD 1.3 billion in reserves over seven months, the actual reserve stock rose by only USD 571 million instead of USD 1.3 billion due to various factors – mainly falling short of planned increases in external debt. Reserves have increased as compared to 2024, although remain below 2023 levels. The reserve adequacy ratio has also deteriorated significantly in recent years. Despite certain positive developments this year, the current growth rate does not suggest that the adequacy ratio will return to 2024 or pre-2020 levels.
