In one of the previous posts we discussed the issue of sustainability of Georgian growth, where it was identified that the growth was fully sustainable assuming that there was no change in exogeneous factors that would affect investors’ decision to make investments in Georgia.

For the sake of clarity we should go through balance of payments figure for 2006. There was large (around 18%) deficit in current account composed of significant deficit in goods and small surplus in services and transfers. Surplus in capital account was composed of large surplus in foreign direct investment and a small surplus in portfolio investment. To summarize the basics: country’s imports were comfortably accommodated by large FDI inflows ensuring stability in foreign balances and good conditions for economic growth.

It is worth noting that current account deficit has been rising during recent years making Georgia more dependent on FDI inflows.

The recent Russian provocation caused a massive outcry in world media and can be undoubtedly considered as a ”bad news of the month”. The events had a negative effect on Russian economy. During first days of the conflict 7 billion US dollar of investments were withdrawn from Russia and the tendency continued afterwards as well. Falling of RTS index (Russian Stock Exchange Index) accelerated and reached unprecedented levels.

What concerns Georgia, during first few weeks foreign reserves of National Bank of Georgia (NBG) (1.5 billion Us dollars) declined by 200 million US dollars. This process reversed soon afterwards, but situation is still shaky.