High indebtedness, regulation and economic development
High indebtedness, regulation and economic development
High indebtedness, regulation and economic developmentback
High indebtedness, regulation and economic development

Any legal change should be considered as provoking a positive impact on the economics and individual activity of citizens. The newly adopted regulations of the National Bank of Georgia is provoked by the initiative of the Government of Georgia to overcome a poverty. Indebtedness represents a global problem that is confirmed by resolutions of the International Monetary Fund and regulatory entities of financial markets of other countries. Leaders of successful economics of the Eastern Europe, Middle and Southern-Eastern Asia as well as South America address to the practice of severing of regulations since the year of 2010. Observations of their results confirms that general macroeconomic parameters are not deteriorated.

According to our observations, governmental initiatives are directed to engaging of masses of population into economic activity that is very important for development of the state’s economics. We have an expectation that the citizen, proceeding from his income, has an access to the retailing crediting products restricted, we underline, – is restricted, but not forbidden. The stated is focused on efficiency of monthly income accumulated by the citizen for service of the obligation existing toward the financial institute and funding of daily demands of the family. However, the new regulation indirectly provides a kind of impulse that by the initiative existing in the process of processing by the granting, preferential crediting and economic block the citizen receives a stable income conditioned by his economic activity in place of the fixed income.

The export volume is an indicator of the trend of rise and it is not determined only by the wine export. Despite of positive changes, the current reports of the taxable balances in the country includes a lot of import replaceable directions. Policy of the country in direction of development of local entrepreneurs, only in the view of stimulating of import replaceable fields should not be developed, but rather oriented on intervention into the export markets. Difficulties in access to the exporting market may be replaced by increasing number of tourists. Active proposing of the home made products to them upon a definite period of time will create a basis for existing of a natural lobby for starting of export in their country.

For the purpose of simplification of the access of citizens and development of economic activity significant steps of the Government by stimulating of startups and small businesses is evident. All this is directed to stimulating of internal economic households overloaded by consumable loans and indebtedness to create an opportunity to overcome an issue of indebtedness in the economics by themselves by increasing of incomes.

It is expected that the regulations enacted by the key regulators of the country since the beginning of the year will be reflected in:

• Flooding of secondary proposals on the real estate market, mainly citizens, in case of mortgaging real estates (as in some cases the regulation banned mortgaging of residing real estates) will try to sell the second non-residing real estate (if applicable) and to satisfy their demands and then to address to the main residing site. We are too far from the concern that citizens will remain without a place of residence, it is possible to turn the trends existing in the construction business for the last time on 1800 degree and in place of expanding to increase a demand on minimal numbers of flats with enough space for residence.

• In parallel with the secondary market, flooding of the delivery may cause decreasing of prices on the market of primary proposal. On the first hand, decreasing of potential buyers, and, on the another hand, increasing of the rate of construction regulations may cause expanding of the companies existing on the real estate market, and small developers will face a necessity of changing of the profile of their activity.

• Due to massive cheapening of monetary resources in the world (and not simplifying of access) it is expected to receive an attack of foreign direct investment capital; in this case origination of long-termed and low rated capital will have a positive impact on the economics, however the curve of the replaced demand may be followed by origination of representatives of speculative capital, where readiness of the regulatory authorities to face this is essential.

• It is possible that a part of economically active citizens who left the banking sector will cause formation of the market which is less subject to regulations and less developed that will not lead to a lower risk for the country than the currently existing banking-financial indebtedness.

• Establishing and periodic rise of the amount threshold on the loans issued in the national currency, as well as their spreading not only on the retailing credit products will automatically be reflected in the decrease of the dollarization coefficient.

• The steps made by the Government in 2017-2018 had an impact on decreasing of dollarization of deposits and households however a less impact was made on positions of the loans issued to legal entities. Maybe it can be explained by long-term of the loan issued to the legal entities when the financial institute could have an impact on “larization” of the credits returned by schedule within the current year.

The above-mentioned was reflected in the record rise of foreign currency stocks, mainly by the end of 2018 it exceeded the 3 billion US dollars threshold ($3,289,847 thousand). In 2019 the following rise of reserves is preliminary determined. In addition to it profitable allocation of reserves more actual.

The regulations interpreted by the provision of crediting of physical bodies (LTV credit providing coefficient, PTI credit service coefficient) covered all credit obligations of physical bodies, e.g. it brought a necessity to count not only borrowers, but their guarantors, suppliers of subjects of provision and other connected bodies. Accordingly, compliance of the borrower and failure in satisfaction by the supplier of the subject of provision causes an automatic refuse.

While comparing of experience of other states in maximal indicators established for the LTV, PTI coefficients we face a one significant different; regulations in other countries mainly are enacted towards the hypothec loans when the Georgian Regulator went much far and covered crediting of the whole households with the regulation. Generally, LTV coefficients are mildly similar with the practice established by our neighboring countries. PTI maximal thresholds are inhomogeneous for hedged and non-hedged clients. Let’s have a hope that the Regulator will be able upon accumulation of the practice to review its significance in favor of consumers.

Despite of reasonability of the making steps in direction of severing of the legislation by the main regulator that is confirmed by the statistics of financial systems let’s have a hope that severing of regulation of the banking system will not have an abrupt impact on the speed of economic development of the state.