On 12 March 2015, the Minister of Finance of Georgia, Nodar Khaduri, declared that although GEL is depreciating in general, it appreciated against the currencies of Georgia’s main trading partner countries. In spite of the depreciation of GEL, however, this does not help exports.

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verified the accuracy of the Minister’s statement.

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reviewed the fluctuation of GEL against the currencies of Georgia’s main trading partner countries. We compared the GEL exchange rate on 12 March 2014 and on 12 March 2015 (the date of the Minister’s statement).

Currency	Exchange Rate 12 March 2014	Exchange Rate 12 March 2015	Difference % Depreciation (Red) Appreciation (Green)
1 AZN (Azerbaijan)	2.21	2.09	5.6
1,000 AMD (Armenia)	4.19	4.53	8.1
100 RUB (Russia)	4.77	3.48	27.0
1 TRY (Turkey)	0.78	0.83	6.3
1 USD (USA)	1.74	2.19	25.7
1 BGN (Bulgaria)	1.23	1.18	4.3
10 UAH (Ukraine)	1.88	1.02	46.0
10 CNY (China)	2.83	3.49	23.2
100 JPY (Japan)	1.68	1.80	7.1
1 EUR	2.41	2.31	4.0

As illustrated from the above table, the currencies of five of Georgia’s ten largest trading partners appreciated against GEL during the course of the last year whilst GEL depreciated against another five currencies in the same period. GEL appreciated significantly against RUB and UAH which was largely the result of punitive sanctions imposed against Russia and the armed conflict on the territory of Ukraine. GEL has appreciated against the currency of Azerbaijan which is Georgia’s principal trading partner. The Georgian currency substantially depreciated against both USD and CNY whilst the margin of GEL depreciation against JPY, AMD and TRY was slight.

To calculate the GEL exchange rate against the country’s ten largest trading partner countries, the National Bank of Georgia uses the methodology of the nominal effective exchange rate which is a weighted mean of the GEL nominal exchange rate against the currencies of the country’s main trading partners. The nominal exchange rate of GEL on 12 March 2015 appreciated by 7.2% as compared to the GEL nominal exchange rate on 12 March 2014 This means that the GEL nominal exchange rate has appreciated.

The depreciation of the national currency encourages exports and conversely decreases imports which eventually helps to improve the current account balance. For instance, let us consider the case of an exporter of Georgian wine who has to spend GEL 10 to produce one bottle of his product and sells it in USD equivalent to GEL 12 in order to gain a GEL 2 profit. For the sake of this example, let us assume that the USD to GEL exchange rate is 1.5. In this case, the wine exporter could sell a bottle of wine for USD 8 (8 x 1.5) which would be equal to GEL 12. If GEL depreciates and USD 1 equals GEL 2, then the exporter will be able to sell one bottle of wine for USD 6 to have the same amount of profit. Therefore, the decrease in prices will in turn increase exports.

However, the country’s exports are not affected by the nominal exchange rate but by the real exchange rate. The real effective exchange rate takes into account the difference in the prices of products in different countries. For instance, if the USD-GEL exchange rate is USD 1 to GEL 2 but the product prices are twice as high in the USA than in Georgia, then the real exchange rate will be 1. This means that the depreciation of GEL against the currencies of Georgia’s major trading partners will encourage Georgian exports only in the case if there is no high inflation in the country.

The impact of the currency exchange rate upon exports to major trading partner countries should be assessed by the real exchange rate. The National Bank of Georgia produces the statistics of the real exchange rate against four currencies (TRY, RUB, EUR and USD). During the last year, the GEL real effective exchange rate has appreciated by 0.8%.

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analysed the currency exchange rate in the period of 12 March 2014 to 12 March 2015 and, therefore, Georgia’s export volume to the trading partner countries has to be analysed in the same period as well.

Country	Share of Exports	Exports in January-February 2014 (USD million)	Exports in January-February 2015 (USD million)	Difference %
Azerbaijan	23.0%	74.5	45.9	-38.4
Turkey	10.4%	33.8	26.0	-23.2
USA	10.3%	33.5	23.8	-29.1
Bulgaria	9.5%	30.9	22.4	-27.4
Armenia	12.4%	40.1	19.5	-51.3
Italy	2.9%	9.4	18.6	96.6
Germany	2.4%	7.8	15.7	101.9
Netherlands	1.3%	4.1	15.7	282.4
Russia	13.5%	43.6	15.6	-64.2
China	1.2%	3.9	14.5	271.0

Exports dropped by 26.4% (GEL 116 million) in January-February 2015 as compared to January-February 2014. As illustrated by the above table, Georgia’s exports decreased to six (Azerbaijan, Armenia, Russia, Turkey, USA and Bulgaria) of its ten major trading partner countries. Of those, GEL appreciated against the currencies of only three countries (Russia, Azerbaijan, Bulgaria) whilst it depreciated against the currencies of the remaining half (Armenia, USA, Turkey).

In fact, besides the exchange rate fluctuation, there are many other factors which can possibly cause a decrease in exports. Of these factors, the most prominent ones are the economic crisis in Russia, the armed conflict on the territory of Ukraine and Azerbaijan’s new law which limits the re-exportation of light vehicles. FactCheck has already written an article

about the causes contributing to the decrease in Georgia’s export.

Conclusion

Throughout the last year, GEL appreciated against the currencies of five of its ten major trading partner countries whilst it experienced depreciation against the currencies of the other five. In sum, the GEL nominal and real exchange rates appreciated which means that Georgia’s trading conditions have not improved after the depreciation of GEL. However, Georgian exports considerably dropped to those three countries (Armenia, USA, Turkey) against whose currencies GEL depreciated.

FactCheck concludes that Nodar Khaduri’s statement: "GEL has appreciated against the currencies of our trading partners but this does not help exports," is MOSTLY TRUE.