The European Bank for Reconstruction and Development (EBRD), the Ministry of Finance and the National Bank of the Republic of Georgia have signed a Memorandum of Understanding on 25th April 2011 to launch the EBRD’s Local Currency Lending Programme in Georgia. Under the Programme the EBRD can provide local currency loans to eligible banks, microfinance institutions and private sector local enterprises at interest rates that aim to catalyse the local currency loan market in Georgia.
The Memorandum of Understanding sets out the framework for promoting of local currency financing in Georgia as part of the EBRD’s major Local Currency and Local Capital Markets Development Initiative.
The EBRD’s Board of Directors approved the Programme in February 2011 to help reduce foreign currency risk and dependence on external financing, which emerged as key vulnerabilities in the EBRD region during the recent global financial and economic crisis.
The Initiative aims to promote the use of local currency both through increasing the use of transactions in local currency and through policy dialogue so as to ensure long-term, sustainable and liquid local currency and local capital markets.
“The Georgian authorities would like to confirm their intention to implement reforms and strengthening the country’s capacity to intermediate savings and investments through the use of local currency – the Georgian Lari. Larization is an opportunity for individuals to take loans and open deposits in the desired currency. Dollarization carries many problems for the country’s economy. The goal of the NBG is to make long term and low interest GEL loans more accessible.”- said Giorgi Kadagidze, President of National Bank of Georgia.
“We are very pleased that we can support the objectives of the Finance Ministry and the National Bank of Georgia to reduce dollarisation and promote the use of local currency, in line with the EBRD’s Initiative,” Olivier Descamps, EBRD Managing Director for Turkey, Eastern Europe, the Caucasus and Central Asia, said. “We will support the authorities not only by providing local currency loans, but we are also ready to offer technical cooperation and policy advice, particularly in the legal and regulatory area and on debt and equity capital market infrastructure.”
The programme for Georgia forms part of a targeted local currency risk-sharing programme for the Early Transition Countries* (ETC), supported by the EBRD and international donor countries through the ETC Local Currency Risk-Sharing Special Fund which will participate in the loans. The EBRD Shareholders Special Fund (SSF), the US Treasury and the ETC multi-donor fund have already committed to contribute to the ETC Local Currency Risk-Sharing Special Fund to support this programme, while discussions with other bilateral donors are underway.
Since the beginning of its operations in Georgia, the EBRD has invested approximately €1 billion in over 120 projects, with currently 70 per cent of the projects representing investments into the private sector.