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The value of the Georgian Lari could be at risk as the Georgian central bank has announced that it expects inflation this year, next year and the year after to be up to double the 2009 rate of 3%.

The National Bank of Georgia has announced its inflation rate target for 2010 - 2012 is 5 - 6%, pointing to a cummulative inflation of around 19% over the three year period.

The Georgian Lari has been under pressure on the foreign exchanges for much of the last year, though the crisis in the Greek economy has eased fears of a substantial devaluation, at least in the short term, against the Euro (see graph).

But with the country running a substantial current account deficit it is heavily dependent on capital inflows to maintain economic stability. Potential for increased exports of manufactured goods is limited in even the medium term without external capital so without foreign investment a vicious circle of inflation, devaluation and a widening trade deficit could take hold. The Georgian government says it is confident it can attract the necessary funding, and ministers with an economic brief are spending substantial amounts of their time in the Middle East in particular.

Inflation also adds to social pressures at home. With many Georgians depedent on state handouts - which are unlikley to increase given the government's already high levels of borrowing - and force down living standards even for those in jobs.