Georgia’s economy is expanding faster than forecast, and international credit rating agencies are upgrading their outlooks for the country. Yet behind this macroeconomic optimism lies a different reality: pronounced income inequality, sluggish inflows of new investment, and a growth trajectory heavily dependent on external drivers. Why Georgia’s economic gains are not felt equally across society and how sustainable the current boom really is—in this report by SOVA.
On October 30, Fitch, one of the world’s leading credit rating agencies, revised its outlook on Georgia from “stable” to “positive.” The agency expects the country’s economy to expand by 7.5% in 2026. Two weeks earlier, the International Monetary Fund also revised its growth forecast for Georgia upward, to 7.2%.
However, domestic statistics do not entirely support the optimism of these recent forecasts: unemployment in 2025 stood at 13.9%, according to the National Statistics Office of Georgia (“Geostat”), while the median wage was nearly 30% below the average, at 1,531 lari before taxes (less than $600).
Fitch assigns credit ratings on a scale ranging from “AAA” for the most reliable borrowers to “D” for those in default. Ratings of “BBB−” and higher are considered investment grade, while those below are categorized as speculative grade. A sovereign credit rating determines the interest rates at which the state and domestic companies can borrow abroad. Many international funds and banks are barred by internal mandates from investing in the debt of countries rated below a specific threshold.
In its latest assessment, Fitch affirmed Georgia’s rating at “BB”—two notches below investment grade—while upgrading the outlook to “positive.” This indicates that the agency may consider a rating upgrade in the future. The primary factors cited include the rapid accumulation of foreign exchange reserves, a narrowing current account deficit, and robust GDP growth rates.
Economist Paata Sheshelidze, president of the New Economic School – Georgia, a free-market think tank, views these assessments favorably.
“They provide investors with vital information and incentivize governments to maintain fiscal discipline. Administrations often face the temptation to seek immediate political gain by ramping up spending, shifting the financial burden onto future governments and taxpayers.”
The analyst cautions, however, that sovereign credit ratings should not be confused with economic freedom indices. Credit ratings evaluate a government’s capacity and willingness to service its debt obligations. Economic freedom indices assess different criteria: property rights, state intervention in the economy, tax burdens, regulatory efficiency, and entrepreneurial freedom.
Sheshelidze notes that international evaluations are routinely highlighted by all Georgian administrations.
“Rating agencies can also make mistakes. That is why their independence, competition among them, and methodological rigor are so important. The primary value of Fitch, as I see it, is that it identifies financial vulnerabilities. This provides governments with an added incentive to adhere to fiscal discipline,” the economist explains.
Former Governor of the National Bank of Georgia and former Member of Parliament Roman Gotsiridze believes Fitch’s positive assessment must be viewed in historical context.
“The sovereign outlook has improved to positive, but reality is far more complex than government propaganda suggests. Strengthening external buffers and reserves is undeniably welcome, but one only needs to look at the historical trend: Georgia held this very rating (BB Positive) back in 2019. Since then, the assessment was downgraded, returned to a positive outlook in 2023, was lowered once more, and has now recovered again. This zigzag trajectory clearly demonstrates that the country is not making a fundamental leap forward, but rather moving in circles,” Gotsiridze notes.
Fitch cited the growth of Georgia’s foreign exchange reserves—the stockpile of foreign currency and gold held by the National Bank—as the primary rationale behind its decision. These reserves act as a sovereign liquidity buffer, enabling the country to service its external debt even when foreign currency inflows decelerate. They are equally critical during periods of sharp lari depreciation, allowing the central bank to intervene by selling dollars to stabilize the national currency.
According to Fitch, Georgia’s reserves reached a record $8.2 billion in September 2026—an increase of $2 billion compared to the end of 2025. By comparison, in October 2024, on the eve of parliamentary elections, the lari faced downward pressure. To support the exchange rate, the National Bank drew heavily on its reserves, depleting them by a record $627 million in a single month down to $4.08 billion. The buffer has since doubled.
Fitch points to four key drivers behind this accumulation: first, prudent monetary policy by Georgia’s central bank; second, strong cross-border financial inflows; third, growing confidence in the domestic currency (the agency notes residents have become more willing to hold savings in lari); and fourth, a narrowing gap between external expenditures and foreign receipts—the current account deficit. In 2024, the deficit stood at 5.1% of GDP, falling to 2.9% in 2025. For 2026, Fitch projects it will narrow further to 1.5%.
Economic Growth and Public Debt
In 2026, Georgia’s real gross domestic product is projected to expand by 7.5%, according to Fitch’s estimates. Between 2023 and 2025, the agency reports that the economy expanded at an average annual rate exceeding 8%.
Sheshelidze links the current growth momentum primarily to the Russia-Ukraine war, which altered regional transit corridors and redirected trade, capital, and migration flows. These shifts, the analyst points out, opened new commercial opportunities for Georgia.
According to Geostat estimates, real GDP expanded by 7.4% year-on-year in January–September 2026.
Over the same nine-month period, Georgia exported $6.15 billion worth of goods—up 19.6% compared to the prior year. Significantly, re-exports accounted for roughly 39% of total export trade, consisting of goods imported into the country and subsequently transshipped onward. “This is an important economic activity. However, gross export value must not be confused with the actual value added created domestically within Georgia,” Sheshelidze emphasizes.
Tourism receipts over the same nine-month period reached $3.8 billion.
“Entrepreneurs deserve recognition: they capitalized on these opportunities, tapped into new markets, and created new services. Nevertheless, one must distinguish between windfall revenues generated by an advantageous international backdrop and sustainable productivity gains. The former can prove transitory; the latter requires domestic savings, capital accumulation, technological advancement, and open market competition,” the economist explains.
He adds that while Georgia’s economic growth is real, current rates are unlikely to be sustained over the long run. Fitch itself projects that real GDP growth will moderate toward approximately 5% in 2027–2028.
Roman Gotsiridze offers a more skeptical assessment of the role played by external tailwinds:
“The primary engine behind this growth and reserve accumulation is Russia’s war in Ukraine, the migration and financial flows it triggered, and Georgia’s indirect economic accommodation of Russia, partially manifested in sanctions circumvention. Presenting a ‘success’ driven by temporary external circumstances as a domestic policy triumph is simply misleading the public—especially when these ‘achievements’ are in many respects illusory, and the dividends of economic expansion are not meaningfully reaching Georgian citizens.”
Fitch projects Georgia’s general government debt will decline to 32% of GDP in 2026, compared to a median of 52% among peer countries in the “BB” rating category.
Another key benchmark is the fiscal deficit—the gap between government spending and fiscal revenue—which by law cannot exceed 3% of GDP. According to Fitch, Georgia remains comfortably below this threshold. In its May report, the agency estimated the general government deficit for 2025 at 1.4% of GDP.
Sheshelidze notes that Georgia restructured its sovereign debt in 2004 and has reliably serviced its obligations ever since. This track record benefits the private sector as well, he argues: when the sovereign is viewed as a reliable debtor, domestic businesses find it easier to secure external financing on competitive terms.
“However, fiscal sustainability and economic freedom are not synonymous. A government can consistently service its public debt while continuing to restrict competition and distribute economic privileges.”
The economist stresses that strong ratings have yet to translate into significant inflows of new foreign capital. In the first half of 2026, foreign direct investment (FDI) fell by approximately 22% year-on-year. Furthermore, in 2025, reinvested earnings from existing operations accounted for 82.5% of total foreign investment, rather than new greenfield capital.
The Risks Highlighted by the Agency
Fitch highlights three principal risks to Georgia’s credit profile.
The first is heightened domestic political polarization. The political opposition rejected the official results of the 2024 parliamentary elections and continues to boycott parliamentary sessions. For rating agencies, political instability is a crucial variable due to its direct transmission into public finances. It was precisely the escalation of domestic political risk that prompted Fitch to lower its outlook on Georgia twice in 2024.
“The problem is not the presence of divergent political opinions, but the degree of state intervention in the economy. The imperative to retain political power can encourage favoritism toward select enterprises, the distribution of rent-seeking privileges, or pressure on independent businesses. Under those conditions, capital investment becomes a political risk,” Sheshelidze explains.
According to the economist, investors need to know their property rights are secure and that they can operate without depending on executive patronage. Otherwise, they will demand higher risk premiums or allocate their capital to other jurisdictions. Entrepreneurs, meanwhile, end up expending effort on maintaining political ties rather than serving consumers.
In this context, Sheshelidze points to the European Commission’s November report, which raised concerns regarding power concentration and the rule of law in Georgia.
“The central political risk is an institutional environment where commercial success depends on proximity to power rather than entrepreneurial merit and consumer preference.”
The second key risk factor identified by Fitch is the stalled accession process to the European Union. While Tbilisi was granted EU candidate status in December 2023, the integration process was effectively frozen in 2024.
The third risk relates to external liquidity metrics. Although Georgia’s foreign reserves have reached record nominal levels, they remain comparatively low against peer sovereigns in the same rating bracket when measured by months of current external payments coverage. In November 2025, reserves stood at $5.6 billion, covering 2.8 months of external payments—well below the 4.8-month median for “BB”-rated sovereigns. Despite expanding to $8.2 billion since, Georgia continues to lag behind its peers on this metric, according to Fitch.
Why Not Everyone Feels the Growth
In its May report, Fitch had already pointed to structural rigidities in the domestic labor market, noting that unemployment remained elevated at 14% in 2025.
“Headline GDP growth does not imply that incomes are rising symmetrically across the population. Still less does it guarantee that citizens’ real purchasing power is expanding,” Sheshelidze says.
While household earnings have climbed, they have done so through divergent channels. Public sector wages and pensions are tied to discretionary budgetary allocations, whereas private sector compensation is governed primarily by productivity and market competition. At the same time, persistent inflation continues to erode a significant portion of nominal income gains.
According to Paata Sheshelidze, the primary beneficiaries of the economic expansion have been individuals and firms operating in cross-border trade, logistics transit, financial services, IT, and real estate. In the second quarter of 2026, the average monthly salary in the information and communication sector stood at approximately 4,400 lari, and in financial intermediation at 4,074 lari. By contrast, average earnings in the agricultural sector were only around 1,500 lari.
The fundamental issue, the economist argues, is not income disparity itself, but how wealth is accumulated. “An entrepreneur who thrives in a competitive market does so by satisfying consumer demand. A politically favored firm, by contrast, may owe its balance sheet to public procurement contracts, regulatory licensing, or government patronage,” he observes.
In Georgia, Sheshelidze argues, public scrutiny should focus particularly on businesses reliant on state tenders and major infrastructure contracts. Political leverage must not confer a commercial advantage. “What matters is not simply how much an entity earns, but whether all market participants enjoy equal freedom to compete for the same opportunities,” he notes.
To translate headline GDP growth into sustainable, real income gains, the economy requires higher labor productivity, domestic capital formation, and unencumbered market competition, the expert stresses. He advocates a sequenced, step-by-step structural reform agenda:
- Depoliticize the economy. The state should divest assets and curb discretionary privileges. All politically motivated market preferences must be dismantled;
- Drastically reduce public spending. The economist proposes eliminating corporate and agricultural production subsidies, downsizing the administrative apparatus, and commercializing state-funded entities, including public schools. This step is necessary to enable tax cuts without causing fiscal imbalances;
- Reduce tax rates. Cut personal income tax from 20% to 15% and standard VAT from 18% to 12%. Tax relief must be matched dollar-for-dollar with spending cuts rather than financed through debt;
- Fiscal decentralization. Under Sheshelidze’s proposal, 50% of income tax and VAT receipts should automatically accrue to municipal budgets. This would reduce local authorities’ reliance on central government transfers and foster municipal competition for business through tailored local tax environments;
- Monetary and banking sector reform. The analyst proposes backing the national currency with gold, allowing currency competition, and granting foreign financial institutions broader market entry to help citizens better preserve their savings;
- Strengthen private property rights over land and natural resources. Sheshelidze recommends establishing full private ownership and transferability for mineral resources, alongside eliminating administrative restrictions on land and natural resource transactions;
- Deepen integration into foreign trade and investment flows. This requires removing remaining non-tariff barriers, streamlining regulatory licensing, and curbing bureaucratic discretion. Georgia, the economist argues, should attract investors through systemic economic freedom rather than bespoke incentives for select players.
“The state cannot allocate capital more effectively than millions of decentralized consumers and entrepreneurs. Its duty is to limit its own authority over the economy, not direct it.”
According to the expert, Georgia does not require the government to manage economic growth. Rather, the economy must be unburdened from political oversight:
“Commercial success must depend on consumer choice, not the favor of those in power.”