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Friday, April 18, 2014
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Georgia’s Economic Prospects for 2013

Written by Mariam Papidze, The FINANCIAL

27/01/2013 20:28 (445 Day 01:01 minutes ago)

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The FINANCIAL -- Georgia will see the fastest output growth in Eastern Europe in 2013, with real growth of 6.5% and 5.5% forecast respectively, Euromonitor International reports.

 

As for the business environment, according to Doing Business 2013 Georgia’s total tax rate, at 16.5% of total profits, is among the lowest in the world.

The Euromonitor International report shows that the Georgian economy has thrived throughout 2012, with manufacturing, construction and tourism all performing well. Declining inflation and unemployment have contributed significantly to the country’s positive outlook as has the precautionary 24-month Stand-By Agreement from the International Monetary Fund which was approved in April 2012. This agreement will provide a buffer in case of any further external shocks (such as a further economic slowdown in the region) but it is precautionary and designed to strengthen market confidence and allow further fiscal consolidation in 2013-2014.

“To improve the economic climate in the country it is important to stabilize the political situation without dissent among society’s various circles,” said Giorgi Natroshvili, Managing Partner at Tbilisi Business Partner. “Another helpful idea is sustainable growth of energy generation, export of domestic products (not only in the agricultural field), increase in investments, and improvement of tourism services quality. Infrastructural projects such as air, road and rail links are very important as well. Tourism activities should be available in all seasons. I mean, sea resorts should be providing almost the same offers in winter as well. The same goes for ski resorts. Utilization of the country’s unique natural resources would be very useful. Georgia has a very hard goal to achieve - revival of the Navy. It could be very useful for the development of Georgia’s economy. All these projects should be implemented this year so as to see results as soon as possible,” Natroshvili added.

The Economic Policy Research Center is preparing a report about Georgia’s economic prospects for 2013 which will be published in ten days time. Nino Evgenidze, Executive Director of the Center, talked exclusively about the content of the report with The FINANCIAL.

“During the October elections both competing political forces made their main focus on the improvement of the social and economic conditions of the population,” said Evgenidze. “Obviously, economic growth was also on the political agenda, though in 2012 emphasis put on the latter was much weaker compared to that put on social equality. It should be mentioned here that the present ruling team has no experience of being in government and the budget presented conveys the feeling of intention to promptly overcome all inequalities and gaps existing on the economy, which, in certain cases, is rather unrealistic. After analyzing the budget, we get an impression that the new government will have to become more realistic during the next budget cycle and to admit that a speedy fulfilment of a major part of pre-election promises is simply not going to be possible. We believe that that would be much more rational rather than throwing billions of GEL at unreasonable expenses,” said Nino Evgenidze.

According to the 2013 draft state budget, the financial resources of the state budget is GEL 8,748.5 million, which exceeds the corresponding indicators of the year 2012 by GEL 628.5 million. In financial resources GEL 8,425.5 million falls on means, mobilized from receipts and the rest is available deposits. Unlike the two previous years, the share of use of free balance existing on the accounts in the state budget has substantially increased and equals GEL 323.0 million. Based on the budget expenditure, in previous years money was mostly accumulated on the budget accounts,  (GEL 109 million - in 2010, GEL 122 million - in 2012), or their use was insignificant (GEL 11.5 million - in 2011). The draft budget for the coming year plans to spend GEL 323.0 million from the amounts existing on the budget accounts.

“Such a scale of use of amounts from the budget accounts is rather risky from the point of view of managing inflation processes (within the goals set), though attention should also be paid to the expenses part of the budget. Namely, GEL 189.4 million was allocated for covering liabilities from the state budget, in 2013 the corresponding indicator is increased to GEL 539.8 million. The above indicates that, compared to 2012 out of the budget which is increased by GEL 628.5 million, GEL 305.5 million will not stay on the domestic market and therefore, its influence on inflation will be almost insignificant,” Evgenidze said.

Revenues growth is related to increase of tax revenues, which has increased by GEL 620 million compared to 2012. But taking into consideration that financial means received from grants and other revenues is reduced compared to in 2012, in total budget revenues are only increased by GEL 368.9 million.

The Minister of Finance of Georgia, Nodar Khaduri, considers the year 2013 to be a crucial year for Georgia.

“Georgia has foreign debt of USD 4.5 billion. Next year would have been very difficult for Georgia as Georgia had to pay off the whole of its debt in 2013, but the former government postponed the deadline till 2021. Next year the country will pay GEL 460 million in state debts, which it has sufficient resources for,” added Khaduri.

Georgia is in debt to the World Bank , the International Monetary Fund, Germany, Russia, Armenia and other countries and organizations. Among this debt Georgia also has commercial loans.

“Georgia took on a debt of half a billion USD in 2008. The previous government first brought this amount of money in to Georgia and then started thinking of where to spend it. There were ideas about using this money for gas storage, an electric transmission line or future and development funds. Then the war began and the government used this money on giving out salaries and pensions. Georgia borrowed USD 500 million in 2011 to pay off an old debt. This is a very expensive loan for Georgia as we have to pay an additional USD 400 million according to the loan’s conditions. So in total, for taking USD 500 million we are having to return USD 900 million. We will refrain from taking loans in the future,” Khaduri said.

According to Euromonitor International Eastern Europe is once again facing another year of poor economic performance thanks to its proximity to Western Europe and the eurozone debt crisis. Growth for the entire region is set to inch up to just 2.7% in 2013 in real terms from 2.4% in 2012, a dismal figure for a group of developing economies.

 

 

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