A change in the government brought little immediate alterations in the Georgia's economic policy. Recently announced reform initiatives are broadly in line with the previous government's actions. This makes us believe there will not be any major domestic policy shifts in the nearest observed future that could have a serious effect on the economy. The only noticeable innovation being the revision of budget's spending priorities, which sees reallocation of funds from capital to current expenditures. Yet, the later adjustment is unlikely to negatively affect economic growth in the mid-term. Foreign investors are waiting for convincing signs from the government that Georgia will remain on its reform path, and it seems to be just a matter of time before FDI inflows strengthen following the post-election lull. We project the economy to continue to grow robustly while inflation to stay low in 2013. Georgia might see a moderate external financing gap on lower external borrowings this year, but that should be safely covered with the NBG reserves and poses no risk to currency stability.

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