According to October 2016 indicators, deposits dollarization indicator in October rose by 0.5% which made up 69.7%. Due to high dollarization, the national currency devaluation has badly affected Georgian citizens, as a major part of borrowers took USD-denominated loans, as they definitely receive wages in GEL.
According for the Government plan, in January-February 2017, USD-denominated home loans issued before January 1, 2015, will probably be converted because of the then exchange rate minus 20 points, the fact that 20 Tetri will likely be subsidized with the state budget. As well, starting January 1, 2017 loans around 100 000 GEL are going to be issued only in GEL, although the top margin will rise to 200 000 starting 2018. Furthermore, cost of any service or product need to be published in GEL starting 2018.
A major part of economists backs the government’s initiative for reducing dollarization level, however, identical majority would not agree to implement the procedure under strict regulations. On one side, it’s very good the Authorities looking to resolve this challenge, but something the place it should are able to attain this goal with no damage the economy.
In regards to the Government’s dedollarization plans, subsidization issue must be outlined first of all. It is actually unjust and populist decision to subsidize every 20 Tetri in 100 000 Gel loans for 33 000 clients. Moreover, prohibition of issuing loans approximately 100 000 GEL in USD could make credits higher end. This tendency will shrink crediting volume and decelerate economic growth paces. Today home interest rates on USD-denominated loans is lower than you are on GEL-denominated loans, because commercial banks are able to draw forex from cheap source, while GEL are received from only domestic market and NBG. Since Georgian citizens opt to make savings in fx, it’s tricky to attract GEL-denominated long-term cash. Therefore, if commercial banks are banned to issue USD-denominated loans of about 200 000 GEL, drawing GEL resources inturn is going to be considerably more expensive and the resources might be lent at expensive rates. The NBG president has taken care of immediately objectors of dedollarization policy on his own Facebook page. Koba Gvenetadze known research by International Monetary Fund (IMF) that proves that exchange rate flexibility is often a key precondition for convenient dedollarization of loans.
“In the study process we explored experience of 33 developing countries in 1997-2015. Moreover, within the research, the more flexible the exchange rate, the faster dedollarization process proceeds. The authors mention the sample of Peru, where dedollarization process was accelerated at high paces after 2014, when the exchange rate flexibility increased in the country and adequate macroprudential measures were introduced. Currently dollarization level in Peru balances out only 29%”, Koba Gvenetadze said.
At no more 1980s as well as the start of 1990s, hyperinflation was recorded in Peru. Consequently, dollarization indicator rose to 90%. After that Peru started serious macroeconomic reforms. New budget law enabled to help keep deficit and loans at low level. Simultaneously, inflation targeting regime that is introduced in 2002 strengthened trust? into the domestic currency. Because of this, inflation indicator is? 2? percent on average since 2002 which is one of several lowest indicators in Latin America. Together, Peru Government has conducted additional measures and introduced stricter requirements for issuing currency credits and at the same time frame, offered repo operations to commercial banks and enabled the theifs to issue credits in national currency.
It should really be noted the policy of dedollarization or so-called Larization was announced by National Bank as being a priority direction this season. Starting 2010 deposits dollarization was declining at reduced rates. As an example, truly deposits dollarization was 79%, when participating in June 2016 deposits dollarization comprised 65%.
As to dollarization coefficient overall loans, the indicator was 73.7% this year, when it’s in June 2016 the ratio in USD-denominated loans marked 67%. It truly is important to note before 2014 dollarization ratio was declining. At the same time, at the start of 2016, when GEL started quick depreciation, in first four months the dollarization level rose to 70% after which it started declining again.
Dollarization indicator was declining at comparatively faster rates in individual loans