• Technical assistance to develop the hedging mechanism
• A milestone for further development of the local currency market
• Enabling the private sector to hedge its risk and exposure to foreign exchange
The Georgian parliament has passed a package of laws regulating the local financial markets and amendments to the capital market legislation, following close cooperation with the European Bank for Reconstruction and Development (EBRD). The EBRD welcomed the decision as an important new chapter, in terms of developing the Georgian capital market.
The new law came as a result of the EBRD’s technical assistance, which was provided to the National Bank of Georgia for the drafting of the package and capacity-building. Experts, funded by the EBRD-managed Shareholder Special Fund, worked with the National Bank of Georgia and local market participants on the legal reform. This project was also coordinated with, and supported by, the International Swaps and Derivatives Association (ISDA).
The new law provides for the enforceability of derivatives transactions, including netting, close-out netting and financial collateral, amends a number of laws and reinforces the key related concepts, such as settlement finality. The new law puts Georgia on the derivatives’ and netting map, allowing companies to safely and efficiently hedge their risk and exposure, including foreign exchange and interest rate, contributing to the development of a local currency financial market.
Catarina Bjorlin Hansen, Regional Director for the Caucasus, said: “The adoption of these laws marks a milestone in Georgia’s reform efforts and confirms the country’s continued commitment to the development of its capital markets. It will improve the investment climate, and we are grateful to the National Bank for our fruitful cooperation and we look forward to working on many more exciting initiatives.”
Koba Gvenetadze, Governor of the National Bank of Georgia, added: "The purpose of the new law is to create the appropriate legal framework for the development of the derivatives market. Georgia has been very successful in advancing its money and capital markets, supported by government reforms and the international donor community. The time has come for creating better hedging and risk management capabilities, through the use of derivatives, where a legal foundation is essential. Derivatives will significantly improve the management of the risks arising from fluctuation in interest or exchange rates. The reform will also provide a green light for a cross-border derivatives transaction, which will attract additional financial resources to the country. We are grateful to the EBRD and ISDA for their continued support in the process.”
The EBRD has worked closely with the National Bank of Georgia to improve the functioning of financial markets in the country, strengthen the local capital market and increase local currency lending. The new law will contribute to the creation of a prospering derivatives market in Georgia. The EBRD, under its Local Currency and Capital Markets initiative, is working on similar projects in Azerbaijan, Belarus, Egypt, Latvia, Morocco and Ukraine.
The EBRD is a leading institutional investor in Georgia. Since the start of its operations in the country, the Bank has invested over €3.6 billion in 249 projects in the financial, corporate, infrastructure and energy sectors, with 89 per cent of these investments in the private sector.