Tbilisi: A new state in Georgia’s bond market

The Messenger, Georgia
Jan 21 2005

A new state in Georgia’s bond market
By M. Alkahzashvili

Finance Minister Zurab Noghaideli has said that Georgia will issue
new state bonds in 2005, and will increase the amount of treasury
liabilities by 60-65 percent by the end of the year.

Currently, Georgia’s Ministry of Finance only issues treasury bonds
with an 18-month maturation date. However, the treasury is planning
to phase in a longer maturation period of 2 years. “This will be a
new state in the development of the bond market in Georgia,” said
Noghaideli in the newspaper Akhali Taoba.

With interest rates dropping dramatically in 2004 – from a peak of
over 40 percent to a year end interest rate of around 13 percent –
T-bills reflected both the new found confidence and reliability of
the government’s economic plan.

During the 2005 fiscal year, the ministry hopes to sell GEL 20
million worth of treasury bonds, currently the only type of bond
issued by the state. Georgia’s use of state-issued bonds to balance
its budget began in 1997. The state plans to use this year’s bond
income to do more than decrease the budget deficit, hoping to use
some of the funds for economic development.

International banks are expected to represent 60 percent of large
buyers in the primary market this year. In 2004, only 10 banks
participated in the primary market sale, according to the newspaper
Rezonansi.

Other papers note that still more can be done to improve the bond
market. Khvalindeli Dge praises changes in the Ministry of Finance
over 2004 for reducing interest payments to 13 percent but points out
this is still higher than the 10 percent annual interest of
neighboring Armenia and Azerbaijan.

Even when the government was at the very limit of its funds, it has
always paid in full when bonds mature. And while corruption remained
in branches of the government tasked with expenditures, it became a
non-factor in the sale and redemption of Georgian treasury bills.

Another question is how the government will perform in the
administration of treasuries. Akhali Taoba reports that in the past,
the Georgian government did not have enough money in the budget to
pay out interest to bond holders, requiring the state to take out
loans, thus increasing rates, from commercial banks to pay the
interest. To date the state has borrowed some GEL 842 million from
the National Bank, according to the newspaper.

But the trend remains encouraging as long as the government can
maintain its revenue collections and wisely manage expenditures. As
long as this is the case, investing in Georgian T-bills will become
an even surer bet, good news for the government and for commercial
borrowers who will see lower private rates as a result.

From: Emil Lazarian | Ararat NewsPress