Roman Gotsiridze: “The National Bank of Georgia sold USD 600 million over the last two months.”

Verdict: FactCheck leaves Roman Gotsiridze’s statement WITHOUT VERDICT.

The National Bank of Georgia (NBG) acquires or spends reserves through various mechanisms, primarily through foreign exchange auctions and the Bmatch platform. Whilst no currency auction was held in September, USD 107 million was sold via the Bmatch platform. A total of USD 213 million was sold at the currency auction; however, the results of October’s Bmatch platform transactions will be released on 25 November.

Over USD 213 million in reserves in a one-month period was sold at the foreign exchange auction only once, in January 2014, when GEL was rapidly depreciating. A similar amount of USD 200 million was sold in October 2020 – when the parliamentary elections coincided with the COVID-19 pandemic. Furthermore, USD 100 million was sold in October 2016 leading up to the parliamentary elections. The NBG sold a total of USD 280 million and purchased USD 278 million at the foreign exchange market, resulting in an almost zero balance.

It is confirmed that a total of USD 320 million was sold at the foreign exchange auction in September and October and on the Bmatch platform in September. The data for transactions on the Bmatch platform for October will become available on 25 November. Whilst it is likely that the NBG intensified currency intervention measures in the pre-election period, it remains impossible to accurately verify whether it indeed sold over USD 600 million over the two months. Thus, FactCheck decided to leave Roman Gotsiridze’s statement WITHOUT VERDICT.

Analysis

MP Roman Gotsiridze took to social media to address the state of reserves, claiming: “The National Bank of Georgia sold over USD 600 million in September and October to prevent the GEL from collapsing. Over half a billion USD was sold in October alone. This scale of intervention has not even been seen during the pandemic.”

Managing and utilising international reserves is a function of the NBG. Reserves constituted USD 4.7 billion as of 30 September 2024. Notably, reserves declined by USD 127 million in September, contributing to a total reduction of USD 297 million over the first nine months of the year. Reserves declined by USD 560 million as compared to the same period last year. Furthermore, reserves have decreased by USD 724 million as compared to the August 2023 levels, when reserves had reached a peak. Data for October will be available on 7 November.

Graph 1: Official International Reserves (USD Million)

Source: National Bank of Georgia

The National Bank maintains international reserves denominated in foreign currency to prevent the impact of external shocks, ensure liquidity and facilitate foreign currency payments for the government of Georgia during financial crises. Reserve management is one of the functions of the National Bank (Organic Law on the National Bank of Georgia, Article 3).

In addition to the absolute amount of reserves, the International Monetary Fund utilises a specific methodology to assess the state of reserves. The adequacy of reserves is assessed using the International Monetary Fund's methodology calculated by the formula: ARA Metric = 5% * exports + 5% * broad money + 30% * short-term debt + 15% * other liabilities. It is preferable for the adequacy ratio to be within 100%-150%. The reserves first fell within this range in 2006 and remained in the adequacy zone until 2014 except for 2008 and 2012. In 2015, the volume of reserves fell below the minimum 100% threshold and it was not until 2020 that they returned to the adequacy zone. However, the volume decreased to 90% in 2023.

Another measure of reserve adequacy is the import coverage ratio. The volume of reserves should exceed the projected import figure for the next three months.Georgia fulfilled the necessary ratio for the first time in 2009 and the volume of reserves consistently exceeded the imports of the next three months until 2023, except for 2014. This ratio decreased to 2.76 in 2023.

In the backdrop of a monetary decline in reserves, given the increase in trade turnover and other economic metrics, the reserve adequacy ratio has likely worsened in 2024.

The NBG utilises several mechanisms to manage its reserves, one of which is the currency auction. The NBG intervened four times in October, selling USD 213 million. Earlier, the NBG made three interventions during May and June, selling USD 169 million. Thus, the total sales amount to USD 382 million.

The NBG primarily sells USD-denominated assets to mitigate crises and short-term shocks, including adverse situations resulting from negative expectations to lessen the impact. Conversely, it purchases reserves during periods of positive tendencies.

The NBG sold a total of USD 167 million in 2023, sold USD 94 million and purchased USD 80 million in 2022, sold USD 333 million in 2021 and sold a record amount of USD 873 million in 2020 via the foreign exchange auction. Despite the aforementioned intervention with USD 873 million, the volume of international reserves increased by USD 400 million, from USD 3.5 billion to USD 3.9 billion, due to increased foreign debt.

Whilst over two months remain in the year and the NBG could theoretically purchase currency, if no actions are taken, the USD 382 million intervention constitutes a record since 2020.

Graph 2: Currency Auctions (USD Million)

Source: National Bank of Georgia

Several factors impact the exchange rates of GEL, including short-term expectations. Furthermore, elections tend to form expectations. There has been an increase in the volume of interventions in the previous pre-election periods.

A record volume of USD 873 million in reserves was sold at the foreign exchange auction in 2020, including USD 200 million in the election month of October. The NBG sold USD 100 million at the auction in October 2016. Notably, the NBG sold a total of USD 280 million and purchased USD 278 million in 2016, resulting in an almost zero balance. The NBG sold USD 60 million two days before the local elections in 2021, which was the last intervention of that year.

A record amount of USD 220 million was sold at the foreign exchange auction in January 2014 when GEL began to depreciate rapidly. Whilst the NBG sold a total of USD 440 million from 8 November 2013 to 25 January 2014 to restrain the aforementioned rate of decline, the official exchange rate still depreciated from 1.67 to 1.78 during this period, despite the interventions. Notably, reserves amounted to USD 3.1 billion as of 31 October 2013, subsequently falling to less than USD 2.6 billion by 31 January 2014, suggesting a 17% decrease over the three months.

Additionally, the NBG also engages in trading on the Bmatch platform. The NBG sold USD 107 million on this platform in September, whilst the data for October will be published on 25 November. However, the volume of reserves will be communicated on 7 November and although this figure may not be entirely accurate, it will provide a general impression of the trade volume. There was no currency auction in September and USD 107 million was sold on the Bmatch platform, resulting in a final reduction of USD 127 million in reserves during that month.

It is confirmed that a total of USD 320 million was sold at the foreign exchange auction in September and October and on the Bmatch platform in September. The data for transactions on the Bmatch platform for October will become available on 25 November (a total sale volume of USD 280 million is necessary to reach the indicated amount of USD 600 million). Whilst it is likely that the NBG intensified currency intervention measures in the pre-election period, it remains impossible to accurately verify whether it indeed sold over USD 600 million over the two months. Thus, FactCheck decided to leave Roman Gotsiridze’s statement WITHOUT VERDICT.