The FINANCIAL - Hyperinflation Awaiting Georgia in the Post-Election Period

Hyperinflation Awaiting Georgia in the Post-Election Period

The FINANCIAL -- Various pre-election investment projects and the influx of tourists are the main contributors to the strengthening of the Georgian Lari in the near future in the area of GEL 2.041 per one US Dollar. Meanwhile, the process is not going to last for a long time. The post-election period usually suspends economic development. After elections the new rate of the Lari against the Dollar is expected to reach 3.39 per USD 1.

The main factors that have contributed to the recent strengthening of the Georgian Lari towards the USD

At the moment, we are witnessing a rapid strengthening of the Georgian Lari. This trend can be explained in two different ways. I, as chief analyst and representative of an independent traders club, am practicing an alternative method of counting pulses and recognising progressions. Price - as an independent figure, is the most powerful tool. It incorporated everything, starting with the business climate and monetary policy, ending with social volumes on supply and demand. Back in 2014, our team predicted that the very first goal of the fall would be 2.4218 against USD 1. Unfortunately, we were right. However, an achievement of a certain level through progression, without exception, gives birth to a new impulse, which corrects and normalizes the previous trend. After the Georgian Lari was fixed at the level of 2.4021, fortification was inevitable.

The second alternative scenario, explaining this strengthening, is the fall of imports in relation to the problem of refinancing, the massive demand for the national currency for the payment of income taxes, social extras panic, the use of different instruments for stabilization and innovation in monetary policy, as well as poor data from the US economics, contributing to decline of the US Dollar. The approaching tourism loop also played more than a small role. It gives rise to demand for the Georgian Lari. Unfortunately, any progress on the financial instruments market has a beginning as well as an end. It means that the strengthening of the GEL cycle will soon, too, come to an end. Whether a new cycle will start is a separate issue.

Was it possible to avoid devaluation of such a giant scale?

No! There is no real instrument in our country which could strengthen the GEL globally. In this situation it would be much better to think about the possibility of protecting businesses and the population from such a rapid fall in the national currency. Unfortunately, our market is very poor in instruments which protect us from a variety of financial risks. As well as that, neither the banking sector nor the state took any action, even forwards contracts for the population.

I would not want to talk about the processes that take place in our politics. However, I can clearly express that, unfortunately, we have not seen a single project stimulating the Georgian economy in recent years. Taking into account all the facts and the way that we went through 2013/14, the wound received was very deep, and we are not eagerly awaiting what lies ahead.

Expectations of the exchange rate of the GEL in the medium-term

In the near future we are still waiting for strengthening, as corrective momentum has not yet fulfilled its purpose. The period of progression of the correction also contributes to it. Various pre-election investment projects, the influx of tourists, and so on, will strengthen the Lari in the near future in the area of GEL 2.041 per one US Dollar.

The future of the Lari in the longer term, for example the first quarter of 2017

Since 2014, our country has experienced the strongest wave of devaluation. It led to a demand for term loans. The development of such industries as the pawn and the MFOs is at certain times accompanying the problem salvation of their customers. Meanwhile, at the same time they drive them into a pit of debt due to the fact that practically all fixed-term loan portfolios are poor. Strengthening of the national currency at the end of the action of its strengthening, could well become a new impetus to the devaluation, as the consumer sector is very hungry in relation to ancillary products. Active demand with half-dead business under currency appreciation will cause a wave of imports, leading again to an outflow of funds. Considering the current financial position of the social stratum and business hungry for a new trade turnover, with a high probability the action taken for so-called development would entail a huge devaluation process, as the retail market is simply not ready to increase turnover.

Considering all the trends taking place in the private sector, according to our forecasts, a collapse of the real estate market is expected because of mortgage loan portfolios, which are already being provided with difficulty. What’s most frightening is once again the fact that the post-election period, as always, suspends economic development. A minimum pause will contribute to the beginning of a progression that has the primary purpose of GEL 3.39 per Dollar. I would very much like to be mistaken, but the brain drain, refinancing problem, shaky banking system and so on, indicate that hyperinflation is waiting for us in the near future.

 

Author: The FINANCIAL


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