The FINANCIAL — The Georgian economy is recovering, changing the platform and is moving from the old strategy to a new one, which will be based on private business development instead of implementing needless infrastructural projects, Nodar Khaduri, Georgia’s Finance Minister, told The FINANCIAL.
The FINANCIAL — The Georgian economy is recovering, changing the platform and is moving from the old strategy to a new one, which will be based on private business development instead of implementing needless infrastructural projects, Nodar Khaduri, Georgia’s Finance Minister, told The FINANCIAL. As a result it is expected that by the end of 2014 the Georgian economy will have experienced 5 percent growth.
“The main problem of the Georgian economy is its old structure,” Khaduri said. “The Georgian economy was growing in accordance with rough interference from the state’s side and with the implementation of incorrect infrastructural projects. For the economy’s development it was the wrong direction. Now we are dragging the economy from old rails to new ones which means that the economy will grow through business run by private entrepreneurs. Private business should be developed in Georgia and the economy should recover. Otherwise our economy will collapse. We predict that the Georgian economy will grow by 5 percent by the end of 2014. However, international organizations argue that we should expect higher indicators of economic growth,” he added.
5 percent growth in the economy is expected for 2014, but in 2013 the Georgian economy continues to lose steam and will grow by just 2.5 percent. EBRD predicted that the economy in Georgia will grow by 3% in 2013, instead of the 5% forecasted in January and well below the Georgian Government’s official forecast of 6%.
GDP growth slowed to 1.3 percent in 3Q13 from 1.5 percent in 2Q13, according to the report by Vitaliy Vavryshchuk, Head of Research at SP Advisors. Export is the only demand component that continues to substantially contribute to GDP growth, the report says. Apart from the increase in commodity exports (est. 6-8% in real terms in 9M13), growth in tourist visits (+25% in 9M13) is a very bright spot.
Besides, the revenue part of the budget of Georgia cannot be fulfilled this year as the Government had planned better economic growth. But all planned social commitments will be fulfilled, Khaduri told The FINANCIAL.
“The budget is dependent on economic capacity. We assumed that the economy would grow by 6 percent. Taking into consideration this background we said that the state budget revenues would be less than the expenditures by 2.9 percent of GDP. The low rate of economic growth was conditioned by several factors, including the current situation on international markets, political tension in the country and destructive actions of the opposition. Due to these factors the business community is still limited and is waiting for the end of the political cohabitation. Despite everything, the economy did begin to grow but it was not enough to reach the 6 percent growth,” he added.
“We have the slightest interruption in some part of the revenue but the budget deficit will be less than we expected. At the moment the budget consists of GEL 1 billion which is enough to pay pensions for the next 10 months from today. GEL 600 million is given to the budget every month in taxes. Besides, there are other kind of revenues – revenues from privatization, enterprises dividends, grants and credits for infrastructural projects. We have increased salaries and pensions, have created universal insurance, have invested in agriculture and we did it under the conditions of human tax administration. Of course, it gave us the difference between the current budget revenues and the time when the previous government ruled the country,” Khaduri said.
A noticeable drop in demand for investment goods remains the key impediment – the Government hasn’t yet revised its large-scale investment project plan and has kept infrastructure spending at a minimum, the author of the report believes.
“One such project is Tbilisi Bypass Railway. All such minor or major delays combined have a material impact on investment activities in the economy. The Co-investment Fund could be a good solution, its goals are feasible, but it will take months to make it start working at full steam,” Vitaliy Vavryshchuk told The FINANCIAL.
“GDP growth has not slowed, it was less than expected. It was GEL 100 in 2011, GEL 106 in 2012 and GEL 109 in 2013. As for the infrastructure, it is still a priority for the Government. GEL 1 billion was allocated for the development of central infrastructure last year and the same amount of money has been allocated this year as well. As for the local infrastructural projects GEL 450 million was allocated. The problem is that many infrastructural projects including the Tbilisi-Rustavi highway, Kobi-Gudauri road, East and West highway were corrupt. The companies took money and could not complete construction. We are currently looking for alternative ways of financing these projects. Many companies went bankrupt and accordingly many projects have been put on hold for a while. Due to this reason the tenders have been stopped and while new winners appear the projects are also stopped. This process takes time and this is why some people say that the number of infrastructural projects is reduced. The new government is not suspending infrastructural projects though,” Khaduri explained.
As Khaduri said, the Co-Investment Fund is going to start implementing big projects from December 2013. Currently the budget of the Co-Investment Fund is at USD 6 billion.
“All the sectors are growing in Georgia except for the construction sector. The construction sector has decreased by 10 percent in the economy because the Government reduced 40 percent of needless constructions. However, infrastructural projects like the construction of roads and water wiring remain our priority,” he said.
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