Georgian Macro Overview 3Q19 and 9M19 Trading Update 10 x = 10 y - - PowerPoint PPT Presentation

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Georgian Macro Overview

10 x = 10 y

22 October 2019

3Q19 and 9M19 Trading Update

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Forward looking statements

Disclaimer This presentation contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Georgia Capital PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, which could include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; regional instability; regulatory risk across a wide range of industries; portfolio company strategic and execution risks; investment risk and liquidity risk and other key factors that indicated could adversely affect our business and financial performance, which are contained in our past and future filings and reports and also the 'Principal Risks and Uncertainties' included in Georgia Capital PLC’s Annual Report and Accounts 2018 and in Georgia Capital PLC’s 1H19 results announcement. No part of this presentation constitutes, or shall be taken to constitute, an invitation or inducement to invest in Georgia Capital PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. Georgia Capital PLC and other entities undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this presentation should be construed as a profit forecast.

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Rating Agency Rating Outlook Affirmed Ba2 Stable September 2019 BB Stable October 2019 BB Stable February 2019

Sovereign ratings with stable outlook and favourable macro fundamentals

General Facts Economy Key Ratings Highlights Georgia is favorably placed among peers

Country Country Rating Fitch Rating Outlook Armenia B+ Positive Azerbaijan BB+ Stable Belarus B Stable Czech Republic AA- Stable Georgia BB Stable Kazakhstan BBB Stable Turkey BB- Negative Ukraine B Positive

▪ Area: 69,700 sq km ▪ Population (2018): 3.7 million ▪ Capital: Tbilisi; ▪ Nominal GDP (Geostat) 2018: GEL 41.1 billion (US$16.2 billion) ▪ Real GDP growth rate 2014-2018: 4.6%, 2.9%, 2.8%, 4.8%, 4.7% ▪ Real GDP 2007-2018 annual average growth rate: 4.5% ▪ GDP per capita 2018 (PPP, international dollar) IMF: 11,485 ▪ Annual inflation (end of period) 2018: 1.5% ▪ External public debt to GDP 2018: 34.3%

Georgia

▪ Life expectancy: 73.5 years ▪ Official language: Georgian ▪ Literacy: 100% ▪ Currency (code): Lari (GEL)

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Georgia’s key economic drivers

Liberal economic policy

Top performer globally in WB Doing Business over the past 12 years ▪ Liberty Act (effective January 2014) ensures a credible fiscal and monetary framework: ▪ Fiscal deficit/GDP capped at 3%; Public debt/GDP capped at 60%; ▪ Business friendly environment and low tax regime (attested by favourable international rankings);

Regional logistics and tourism hub

A natural transport and logistics hub, connecting land-locked energy rich countries in the east and European markets in the west ▪ Access to a market of 2.8 billion customers without customs duties: Free trade agreements with EU, China, Hong Kong, CIS and Turkey and GSP with USA, Canada, Japan, Norway and Switzerland; FTA with Israel and India under consideration. ▪ Tourism revenues on the rise: tourism inflows stood at US$ 3.2 billion in 2018 and international travelers reached 8.7 million in 2018 (up 9.8% y-o-y), out of which tourist arrivals were up 17% y-o-y to 4.8 million visitors. ▪ Regional energy transit corridor accounting for 1.6% of the world’s oil and gas transit volumes.

Strong FDI

An influx of foreign investors on the back of the economic reforms have boosted productivity and accelerated growth ▪ FDI stood at US$ 1.3 billion (7.8% of GDP) in 2018. ▪ FDI averaged 9.8% of GDP in 2007-2018.

Support from international community

Georgia and the EU signed an Association Agreement and DCFTA in June 2014 ▪ Visa-free travel to the EU is another major success in Georgian foreign policy. Georgian passport holders were granted free visa entrance to the EU countries from 28 March 2017. ▪ Discussions commenced with the USA to drive inward investments and exports. ▪ Strong political support from NATO, EU, US, UN and member of WTO since 2000; Substantial support from DFIs, the US and EU.

Electricity transit hub potential

Developed, stable and competitively priced energy sector ▪ Only 20% of hydropower capacity utilized; 155 renewable (HPPs/WPPs/SPPs) energy power plants are in various stages of construction or development. ▪ Georgia imports natural gas mainly from Azerbaijan. ▪ Significantly boosted transmission capacity in recent years, a new 400 kV line to Turkey and 500 kV line to Azerbaijan built, other transmission lines to Armenia and Russia upgraded. ▪ Additional 2,000 MW transmission capacity development in the pipeline, facilitating cross-border electricity trade and energy swaps to Eastern Europe.

Political environment stabilised

▪ Georgia underscored its commitment to European values by securing a democratic transfer of political power in successive parliamentary, presidential, and local elections and by signing an Association Agreement and free trade agreement with the EU. ▪ New constitution amendments passed in 2013 to enhance governing responsibility of Parliament and reduce the powers of the Presidency. ▪ Continued economic relationship with Russia, although economic dependence is relatively low. ▪ Russia began issuing visas to Georgians in March 2009; Georgia abolished visa requirements for Russians – Russia announced the easing of visa procedures for Georgians citizens effective December 23, 2015. ▪ Direct flights between the two countries resumed in January 2010. However, they have been banned again since July 2019 following the decision from Russia. ▪ Member of WTO since 2000, allowed Russia’s access to WTO; In 2013 trade restored with Russia. ▪ In 2018, Russia accounted for 13.0% of Georgia’s exports and 10.3% of imports.

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147 98 80 71 68 64 60 42 37 35 16 15 12 7

Ukraine Russia Italy France Turkey Hungary Azerbaijan Romania Bulgaria Latvia Georgia Estonia USA UK

77 71 51 43 41 35 33 31 28 25 24 16 8 7 6 2 1

India Ukraine Italy Turkey Armenia Czech rep. Poland Russia Kazakhstan Azerbaijan Germany Estonia US Norway Georgia Singapore New Zealand

Institutional oriented reforms

Economic Freedom Index | 2019 (Heritage Foundation) Ease of Doing Business | 2019 (WB Doing Business Report) Business Bribery Risk, 2018 | Trace International Corruption Perception Index | TI 2018

up from 9th in 2018 Top 8 in Europe region out of 44 countries

Sources: Transparency International, Heritage Foundation, World Bank, Trace International.

Open Budget Index, 2017 | International Budget Partnership

77 53 42 39 32 30 25 17 15 13 7 5 4 1

Azerbaijan India Kazakhstan Ukraine Turkey Poland Czech rep. Germany Russia Italy US Georgia Norway New Zealand

up from 16th in 2015

130 127 108 105 95 77 40 36 32 27 26 21 15 12 7 3 2

Turkey Kazakhstan Russia Ukraine Azerbaijan Armenia Italy Poland Czech rep. Georgia Japan France Estonia Singapore UK Norway Sweden

Georgia is on a par with EU member states

Higher index means lower corruption

23 25 28 31 32 33 35 38 41 42 45 47 50 58 58 59 59

Uzbekistan Azerbaijan Russia Kazakhstan Ukraine Moldova Armenia Bosnia & Hezegovinia Turkey Bulgaria Montenegro Romania Slovakia Latvia Georgia Czech Republic Lithuania

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Source: Geostat

Gross domestic product

Diversified resilient economy

• 0.3

1.5 1.7 2.0 2.0 2.4 3.0 3.1 3.6 3.7 3.8 4.5 4.9

One of the Fastest Developing Economies in the Region

Comparative real GDP growth rates, % (2007-2018 average)

Source: IMF

Diversified nominal GDP structure, 1H19

Source: Geostat

Monthly Economic Activity Estimate, y-o-y growth

Economic activity increased by 5% y-o-y in Jan-Aug 20191

Source: Geostat

¹ preliminary data

Trade 17% Industry 17% Transport and communicatio ns 11% Construction 8% Public administration 8% Agriculture 8% Real Estate 7% Healthcare 6% Financial intermediation 5% Hotels and restaurants 3% Education 5% Other 5% 5.8% 9.6% 9.4% 12.6% 2.4%

• 3.7%

6.2% 7.2% 6.4% 3.4% 4.6% 2.9% 2.8% 4.8% 4.7% 4.7%

• 4%

0% 4% 8% 12% 16% 5 10 15 20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H2019

Nominal GDP, US$ b, LHS Real GDP growth rate, y/y 0.8 2.6 3.4 4.3 2.1 2.9 2.1 2.9 1.5 1.3 2.0 0.3 5.2 4.4 5.3 2.1 5.3 4.6 3.8 4.3 5.0 5.7 3.7 4.7 4.4 5.5 5.6 6.5 7.5 4.0 4.6 2.0 5.6 6.7 2.2 5.6 3.5 4.6 6.0 5.1 4.7 5.0 6.1 5.8

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19

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Sources: GeoStat Sources: GeoStat Sources: GeoStat

Unemployment rate down 1.3 ppts y-o-y to 12.7% in 2018 UNDP Human Development Index Labor force decomposition 2018 Average monthly nominal earnings in business sector

Room for further job creation

Sources: UNDP

Hired workers accounted 51% in total employment in 2018

0.67 0.68 0.68 0.69 0.70 0.71 0.72 0.73 0.73 0.73 0.74 0.74 0.75 0.76 0.77 0.77 0.78 0.78 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 632 608 629 622 635 669 684 716 694 744 798 801 824 860 1,050 1,008 949 974 975 957 952 936 940 944 928 910 882 833 300 294 331 347 361 343 345 345 335 290 284 279 276 246

1,983 1,912 1,909 1,945 1,972 1,971 1,988 2,005 1,979 1,985 2,018 1,996 1,983 1,940 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Hired Self-employed Unemployed Not-identified worker

12.4 12.6 10.3 11.1 13.5 12.7 13.9 15.1 15.4 17.4 17.9 18.3 17.4 17.3 17.2 16.9 14.6 14.1 14.0 13.9 12.7

5 10 15 20 1400 1500 1600 1700 1800 1900 2000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

1000 p

Employed Unemployment % 922 978 1,012 1,130 1,024 1,107 1,144 1,242 1,106 1,150 1,187 1,319 1,152 1,241 500 1000 1500 2000 500 1000 1500 2000 Energy Construction Trade Tourism Real estate Total

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Sources: NBG, GeoStat

Inflation y-o-y vs. inflation target Inflation y-o-y Average monthly nominal earnings M2 vs. inflation, y-o-y,%

Source: GeoStat Source: Geostat

Temporary supply side shock and inflationary expectations stemming from depreciated NEER led inflation to overshoot the 3% target

Sources: Geostat, NBG

Monthly nominal earnings increased on average 7.7% y-o-y in 2010-2018

Inflation targeting since 2009

1,180 400 500 600 700 800 900 1000 1100 1200 1300 2010_I 2010_II 2010_III 2010_IV 2011_I 2011_II 2011_III 2011_IV 2012_I 2012_II 2012_III 2012_IV 2013_I 2013_II 2013_III 2013_IV 2014_I 2014_II 2014_III 2014_IV 2015_I 2015_II 2015_III 2015_IV 2016_I 2016_II 2016_III 2016_IV 2017_I 2017_II 2017_III 2017_IV 2018_I 2018_II 2018_III 2018_IV 2019_I 2019_II GEL

Core inflation closer to target

6.4

• 3.0
• 1.0

1.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0

Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

• 2

2 4 6 8 10

• 2

2 4 6 8 10

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19

Monthly Inflation Headline Inflation Core (non-food, non-energy) Inflation

• 5

5 10 15 20

• 40
• 20

20 40 60 80 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 M2 Y/Y % LHS Inflation Y/Y % RHS

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0.4 0.4 0.4 0.5 0.6 0.7 0.9 1.1 1.3 1.3 1.6 2.0 2.6 3.0 3.0 3.1 3.3 4.0 4.5 2.1 0.5 0.5 0.6 0.7 1.0 1.3 1.4 1.8 2.1 1.6 1.9 2.5 2.5 3.1 3.1 2.6 2.5 3.1 3.6 1.9 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.3 0.2 0.5 0.7 0.9 1.1 0.9 0.4 0.3 0.5 0.8 0.4 0.0 2.0 4.0 6.0 8.0 10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H2019

Service exports Goods exports, geo-originated Re-exports

Sources: NBG

Current account balance (% of nominal GDP) FDI and capital goods import

Source: GeoStat

Exports and Re-exports, US$ billion

Source: NBG

Current account deficit financed by FDI

0.0% 5.0% 10.0% 15.0% 20.0% 0.0% 5.0% 10.0% 15.0% 20.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H2019 Capital Goods Import, % of GDP FDI, % of GDP

Double digit shrinking in the trade deficit helped CAB to improve to a historic low in 1H19

• 5.8%-6.1%-6.5%-9.7%-7.0%
• 11.1%
• 15.2%
• 19.8%
• 22.0%
• 10.6%
• 10.3%
• 12.8%
• 11.9%
• 5.9%
• 10.8%
• 12.6%
• 13.1%
• 8.7%-7.3%-4.6%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30%

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H2019

Goods, net Services, net Investment income, net Current transfers, net Current account FDI

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8.5%9.6% 7.1% 15.1% 17.2% 12.3% 6.2%7.3%7.8%6.5%6.3% 11.1% 12.4% 11.5% 13.0% 7.8%6.2% 0% 5% 10% 15% 20% 25% 500 1,000 1,500 2,000 2,500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H2019 FDI, US$ mln, LHS FDI as a % of GDP 3.1 4.7 5.7 5.9 6.3 6.7 7.9 8.7 7.2 0.0 2.0 4.0 6.0 8.0 10.0 100 600 1100 1600 2100 2600 3100 3600 2011 2012 2013 2014 2015 2016 2017 2018 9M2019 Tourism inflows, US$ mn, LHS Number of foreign visitors, mln, RHS

Sources: GeoStat Sources: GNTA, NBG Source: NBG

Strong foreign investor interest Visitors and tourism revenues Remittances - steady source of external funding

US$ millions

Export continues to support economic growth

Source: Georstat

In nine months of 2019, exports increased by 11.1% y-o-y to US$ 2.7 billion Remittances increased to US$ 806 million, 8.3% y-o-y in 1H19

Diversified sources of capital

116 125 138 137 146 144 155 146 45 65 85 105 125 145 165 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2016 2017 2018 2019

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 60% 50 100 150 200 250 300 350 400 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Exports, US$ mn, LHS % change y/y, exports, RHS

Page 11

1496 1310 857 848 823 771 763 757 714 692 661 629 591 555 527 458 441 140 200 400 600 800 1000 1200 1400 1600 3.8 3.1 3.0 2.5 2.5 1.7 1.7 1.6 1.3 1.0 1.0 0.9 0.6 0.5 0.5 0.5 0.3 0.2

0.5 1 1.5 2 2.5 3 3.5 4

Sources: NBG, Geostat Source: WDI Source: WDI

Tourism revenues to GDP Spending per arrival, 2017 Arrivals to country’s population, 2017 Number of Tourists (overnight visitors)

Source: GNTA

In nine months of 2019, the number of overnight visitors increased by 5.8% y-o-y, including 1.4% growth in Q3 despite the Russian air travel ban

Tourism sector on the rise

6% 9% 11% 11% 14% 15% 18% 20% 19% 0% 5% 10% 15% 20% 25% 100 600 1100 1600 2100 2600 3100 3600 2011 2012 2013 2014 2015 2016 2017 2018 1H2019 US$ million Tourism inflows, US$ mn, LHS Tourism revenues, % of GDP

306 248 328 349 425 472 570 754 540

100 300 500 700 900

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Thousands

2015 2016 2017 2018 2019

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Goods’ Trade Deficit Oil imports Electricity generation and trade, GWH

Source: ESCO Source: GeoStat Source: GeoStat

Diversified foreign trade

Based on preliminary data in the first nine months of 2019, the trade deficit narrowed by 11.7 % y-o-y to US$ 3.8 billion from US$ 4.3 billion, further decreasing FX pressure. 59% 45% 73% 88% 99% 99% 99% 91% 86% 70% 68% 63% 67% 64% 78% 96% 93% 99% 99% 84% 80% 74% 63% 71% 59% 54% 55% 83% 99% 99% 99% 86% 200 400 600 800 1000 1200 1400 TPPs HPPs WPPs Imports Exports Domestic Supply

• 600
• 400
• 200

200 400 600 800 1000 1200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 8M2019

• 50%
• 30%
• 10%

10% 30% 50% 70% 90%

Oil imports, US$ mn Oil imports, % change, y/y

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 600
• 500
• 400
• 300
• 200
• 100

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Trade Deficit, US$ mn, LHS % change y/y, trade deficit, RHS

Page 13

EU countries 24% Russia 15% Azerbaijan 12% Turkey 7% Armenia 8% Ukraine 7% United States 4% Other 23% EU countries 26% Turkey 17% Russia 10% China 10% Azerbaijan 7% United States 5% Ukraine 4% Armenia 3% Other 18%

Sources: GeoStat Source: NBG Source:, Geostat

Foreign Demand, 1H19 Importing countries, 1H19 Exporting countries, 1H19

Sources: GeoStat

Imports of Goods, contribution to growth

21% 20% 17% 15% 12% 6% 6%

Machinery and transport equipment Crude materials, except fuels Manufactured goods Beverages and tobacco Chemicals and related products Food and live animals Commodities Mineral fuels, lubricants and related materials Animal and vegetable oils

Diversified foreign trade

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40%

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Investment goods Intermediate goods Consumer goods Import growth, y/y, %

Page 14

7.50 2 4 6 8 10 12 14

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19

Sources: NBG

International reserves Monetary policy rate Nonperforming loans to total gross loans, latest 2019

Sources Central banks Sources: IMF Sources: NBG

Monetary policy rate remains low vs. peers

NBG twice increased its refinancing rate in September, by 50 basis points each time, up to 7.5%, aiming to alleviate inflationary pressures due to the NEER depreciation and negative expectations.

10.70% 9.40% 9.4% 8.60% 8.40% 7.60% 6.40% 5.10% 4.90% 4.00% 3.70% 3.00% 2.40% 2.20% Russia Portugal Croatia Kazakhstan Bosnia and Herzegovina Bulgaria Armenia Latvia Romania Poland Turkey Georgia Hungary Lithuania

Prudent monetary policy ensures macro-financial stability

• 800
• 300

200 700 1200 1700 2200 2700 3200 3700

• 800
• 300

200 700 1200 1700 2200 2700 3200 3700

Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19

Official Reserve Assets, US$ mln Net Foreign Assets, US$ mln 5.00% 7.50% 7.00% 16.50% 9.25% 9.50% 16.50% 8.00% 0% 5% 10% 15% 20% 25% 30% Armenia Georgia Russia Turkey Kazakhstan Belarus Ukraine Azerbaijan End-2017 End-2018 Latest-2019

Page 15

20 40 60 80 100 120 140 160 180 20 40 60 80 100 120 140 160 180 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

EUR/GEL RUB/GEL TRY/GEL USD/GEL

Sources: NBG Source: NBG Sources: NBG

Bilateral exchange rate indices (Dec2012=100) Real effective exchange rate (REER) Dollarization ratios Central Bank’s interventions

Sources: NBG

Flexible exchange rate regime plays a role as a shock-absorber NBG purchased $165 million in 1H19, but sold $72.8 million in Q3 to curb negative expectations

Floating exchange rate - policy priority

220

• 80
• 120

40 40 120 40 40 27 20 20 20 60

• 15
• 40
• 140
• 63

60 100 40

• 20
• 70
• 40
• 20 -30
• 20
• 18
• 25 -20
• 65
• 85
• 50
• 30

33 40

• 200
• 150
• 100
• 50

50 100 150 200 250

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19

NBG monthly net interventions US$ mn US$ sale US$ purchase 50 55 60 65 70 75 80 50 55 60 65 70 75 80

Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19

Loan dollarization Deposit dollarization 85 95 105 115 125 135 145 155 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 REER (Jan 2003=100) Linear (REER (Jan 2003=100))

Page 16

• 500

1,000 1,500 2,000 2,500 05/01/17 05/02/17 05/03/17 05/04/17 05/05/17 05/06/17 05/07/17 05/08/17 05/09/17 05/10/17 05/11/17 05/12/17 05/01/18 05/02/18 05/03/18 05/04/18 05/05/18 05/06/18 05/07/18 05/08/18 05/09/18 05/10/18 05/11/18 05/12/18 05/01/19 05/02/19 05/03/19 05/04/19 05/05/19 05/06/19 05/07/19 05/08/19 05/09/19 05/10/19

• 10%

0% 10% 20% 30% 40%

May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19

USD/GEL, EOP, y/y M1, y/y

Sources: NBG Source: NBG Sources: NBG

Required reserves Refinancing loan, issued amount, mln Gel M1 money vs USD/GEL, y/y growth rates

Sources: NBG

NBG regulations caused cost of GEL funds to decrease

Interest rates on mortgage loans

60% 70% 80% 90% 100% 0% 5% 10% 15% 20% 25% Spread, LHS Interest rate on LC mortgages, flow, LHS Interest rate on FC mortgages, flow, LHS Dollarization of mortgages, RHS 500 1000 1500 2000 1.2 1.7 2.2 2.7 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 Required reserves, FC, US$mln, RHS USD/GEL, eop, LHS

Page 17 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% 60% 70% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020F 2021F 2022F 2023F External public debt to GDP, % Total public debt to GDP, %

Source: MOF Sources: MOF Source: MOF, as of August 2019 Source: MOF

Modified Fiscal Deficit, % of GDP (IMF programme) Breakdown of public debt Current vs Capital Expenditure, % of GDP Public debt as % of GDP is capped at 60%

Low public debt

Domestic 19%

Multilateral 59% Bilateral 14% Eurobond 8%

External 81%

• 3.0
• 2.9
• 2.5
• 2.6
• 2.7
• 2.8
• 2.8
• 2.7
• 3
• 2.8
• 2.6
• 2.4
• 2.2
• 2
• 1.8
• 1.6
• 1.4
• 1.2
• 1

2016 2017 2018 2019E 2020F 2021F 2022F 2023F %

25.9% 24.3% 23.1% 23.3% 23.3% 23.2% 23.1% 23.2% 5.1% 6.1% 7.0% 7.8% 7.3% 7.0% 7.1% 6.9% 0% 5% 10% 15% 20% 25% 30% 2016 2017 2018 2019E 2020F 2021F 2022F 2023F Current Expenditures Capital Expenditures (Acquisition of Non-financial Assets)

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Education Promoting Transit & Tourism Hub Structural Reforms

▪ Tax Reform ▪ Favorable tax rates for SME development ▪ Special tax regimes for regional offices of multinational companies ▪ Enhancing easiness of tax compliance ▪ Capital Market Reform ▪ Boosting stock exchange activities ▪ Development of local bond market ▪ Pension Reform ▪ Introduction of private pension system ▪ PPP Reform ▪ Introduction of transparent and efficient PPP framework ▪ Public Investment Management Framework ▪ Improved efficiency of state projects ▪ Law of Georgia on Entrepreneurs ▪ New law will be drafted reflecting requirements of Association Agreement between EU and Georgia ▪ Responsible Lending ▪ Regulatory actions to support responsible lending ▪ Decrease household over indebtedness ▪ Maximizing Government Effectiveness ▪ Modification of government support programs based on performance ▪ Priority to utilize government assets in economic activity ▪ Gradual government exit from strongly developed areas ▪ Association Agreement Agenda ▪ Roads ▪ Plan to finish all spinal projects by 2020 – East-West Highway, other supporting infrastructure ▪ Rail ▪ Baku – Tbilisi Kars new railroad line ▪ Railway modernization and integration in international transport systems ▪ Maritime ▪ Anaklia deep water Black Sea port ˗ Strategic location ˗ Capable of accommodating Panamax type cargo vessels ˗ High capacity – up to 100 million tons turnover annually ▪ Up to USD 2.5 billion for the project completion; ▪ General Education Reform ▪ Maximising quality of teaching in secondary schools ▪ Fundamental Reform of Higher Education ▪ Based on the comprehensive research of the labour market needs ▪ Improvement of Vocational Education ▪ Increase involvement of the private sector in the professional education

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Growth-oriented government reforms (2019-2020)