Giorgi Kakauridze: “We are taking debts only for funding infrastructural projects.”

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The FINANCIAL — The Deputy Minister of Finance of Georgia, Giorgi Kakauridze, commenting upon Georgia’s draft state budget for 2018, stated: “If we compare the 2017 and 2018 figures, we will see that the volume of borrowing has increased slightly. However, at the same, debt repayment increased significantly. In 2018, the total amount of debt service will be GEL 760 million which is unprecedented… In regard to debt, we take debts only for funding infrastructural projects which are very important for enhancing tourist as well as transit potential.”

FactCheck took interest in the accuracy of the statement.

According to Georgia’s draft state budget for 2018, the Government of Georgia will take GEL 2.04 billion in debt in 2018 which is GEL 245 million more as compared to the planned amount of debt for 2017 (see Table 1).

As illustrated by the table, the domestic debt figure will be kept at the level of this year’s planned amount and equal GEL 400 million whilst the growth of the total debt is because of the growth of foreign debt. At the same time, the volume of budget support loans decreased by GEL 120 million in terms of foreign obligations whilst the amount of long-term preferential loans is on the rise.

The debt service figure increases simultaneously with the growth of foreign obligations. In 2018, GEL 790 million in debt will be repaid which is GEL 264 million more as compared to this year’s plan and constitutes the largest amount of money which has been spent for debt service in the last years. Therefore, debt changing (the difference between debt growth and debt decrease) amounts to GEL 1,248 million according to the draft state budget for 2018 and is GEL 18.6 million less as compared to the similar figure for 2017.

Information on whether or not the state takes debts to fund only infrastructural projects is given in chapter six of the draft budget. The chapter reads that 86% of the new debt (more than GEL 1 billion) is designated for Georgia’s Ministry of Infrastructure and Regional Development which will be fully spent on infrastructural projects. Of the total amount of debt, GEL 22 million will go to the Ministry of Defence for arms purchase and GEL 30.3 million will go to the Ministry of Education and Science for the rehabilitation of public schools. Further, the Ministry of Energy will receive GEL 62.8 million for improving energy infrastructure and a loan of GEL 55 million will be given to the Ministry of Agriculture. Of that GEL 55 million, GEL 20 million will be spent on the agro-credit programme (which is not aninfrastructure expenditure) and GEL 35 million will be spent on the modernization of irrigation systems. In sum, approximately 95% of the newly taken debt will be allocated for infrastructural expenditures.

Georgia’s draft budget for 2018 shows that the current income is GEL 615.5 million more (operational balance) as compared to current expenses. This means that the state will save money in the current expenditure component and use this money to create non-financial and financial assets. In total, Georgia will spend GEL 1,863 million on the creation of assets (net profit). This GEL 1,863 million will be comprised of GEL 615.5 million from the budget operational balance and GEL 1,248 million from borrowing. Therefore, if the Government of Georgia manages to cut its current expenses, the budget’s operation balance will increase and funding the same amount of infrastructure work will require a lesser amount of debt taking.

Conclusion

According to the draft budget for 2018, the growth of obligations figure increased by GEL 245 million and constitutes GEL 2.04 billion. The growth of obligations is stipulated by an increase in investment loans.

The classification of budget and appropriations (expenses) demonstrates that the state almost never takes debt to fund current expenses. However, if the budget’s current expenses had been planned more economically, the government’s savings would have increased and the country would have required a lesser amount of state debt to fund the same amount of infrastuctural projects. Budget classification is still a conditional division and does not imply that the Government of Georgia would still have spent the same amount of money as planned if donors had not lent money for infrastructure projects. In this case, it would be necessary to cut current expenses. The budget is technically organised as if taking debts does not affect the volume of current expenses which is substantially incorrect.

Therefore, FactCheck concludes that Giorgi Kakauridze’s statement is MOSTLY TRUE.

 

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