Technical Assistance Reports

Georgia: Technical Assistance Report-Report on Stress Testing the Central Bank Balance Sheet and Developing Hedging Markets

May 10, 2024

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Georgia: Technical Assistance Report-Report on Stress Testing the Central Bank Balance Sheet and Developing Hedging Markets, (USA: International Monetary Fund, 2024) accessed November 4, 2024

Summary

This CD engagement covered two distinct areas to help the National Bank of Georgia (NBG) deliver on its price stability mandate, it: 1) provided a forward-looking analysis of the NBG’s balance sheet to assess its policy solvency and to help institutionalize such a process, and 2) outlined a strategy to develop hedging instruments in interest rate and foreign exchange (FX) markets to support monetary policy transmission. With virtually no interest-bearing liabilities, the NBG balance sheet is robust. Under the adverse shock, it improves on account of FX revaluation gains. Higher inflation also helps, since the need for a higher policy rate generates larger domestic interest income. Institutionalizing this analysis allows for early warning of the need to reduce dividend payments (or for re-capitalization) thereby supporting operational independence. Georgia has made good progress on many of the enabling conditions for developing hedging markets, but several structural factors provide challenges. A supportive regulatory environment is in place, market infrastructure is robust, and there is a range of instruments available to serve as the underlying instrument for derivatives. However, there is a lack of heterogeneity of financial risk profile and appetite amongst participants. Recommendations include setting up a standardized FX forward trading platform, pushing for upgrades of banks’ treasury management systems, supporting the targeted education and training efforts of the Georgian Financial Markets Treasuries Association, revising the current FX forward index to be more informative by publishing outright transacted rates; and publishing Overnight Indexed Swap benchmarks.

Subject: Currency markets, Exchange rate risk, Financial markets, Financial regulation and supervision, Financial statements, Foreign exchange, Hedging, International organization, Monetary policy, Public financial management (PFM)

Keywords: Central bank independence, Central bank policy solvency, Currency markets, Department mission, Eastern Europe, Exchange rate risk, Financial market development, Financial statements, Foreign exchange markets, Georgia, Global, Hedging, Hedging market, Market infrastructure, Monetary policy transmission, Money markets., NBG balance sheet, Request of the National Bank of Georgia

Publication Details

  • Pages:

    51

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Technical Assistance Report No. 2024/038

  • Stock No:

    TAREA2024038

  • ISBN:

    9798400275616

  • ISSN:

    3005-4575