Georgia's 2Q10 C/A deficit widened 77% q/q to US$ 319mn (12% y/y) on a widening of the merchandise trade deficit (25% q/q) and a weaker current transfers surplus (down 15% q/q). The capital and financial account balance deteriorated 13% y/y to US$ 86mn as a sizable capital outflow from the banking sector offset an increase in FDI (up 157% q/q to US$ 195mn). Overall, the country's external financing gap stood at US$ 233mn in 2Q10, taking the 1H10 shortfall to US$ 314mn.
Giorgi Iremashvili, Equity Research Analyst: We expect the C/A balance will deteriorate in 2H10 on a seasonal increase in imports, but we see no risks to our projection for the 2010 C/A deficit of US$ 1.2bn (10.8% of 2010E GDP). On the financial account side, we expect capital outflows from the banking sector will continue as banks choose to repay wholesale external funding against the backdrop of weaker demand for FX loans. We also project 2H10 FDI will pick up 25% vs. the 1H to US$ 0.34bn.
