The FINANCIAL — Verdict: Giorgi Kvirikashvili’s statement is TRUE.
Summary: A negative current account balance of a country means that more currency leaves the country than enters it, which negatively affects the economy. It causes pressure on exchange rate and creates the necessity of covering the deficit with a financial account (investment, borrowing and decreasing currency reserves). A high current account deficit increases the credit risk of the economy, which, in turn, is reflected in a decreased access to the credit resource and/or an increased interest rate.
As of 2017, the current account deficit decreased by USD 531 million and equalled USD 1,316 million. The share of deficit constituted 8.7% of the GDP of the respective period that is one of the lowest indicators in the last decade, surpassing only the 2013 indicator (5.9%). The analogous indicator amounted to 12.8% in 2016.
Traditionally, negative trade balance remained the main factor behind the formation of the current account deficit. This is partly balanced by the trade of service, Including at the expense of increase in tourism profit.
The Prime Minister of Georgia, Giorgi Kvirikashvili, stated during a government meeting: “It is important that the current account deficit reached one of the lowest indicators in 2017, falling from nearly 13% to 8.7%, manifesting a USD 531 million decrease. This is very important for the stability of the currency exchange rate and represents one of the positive indicators.”
FactCheck took interest in the accuracy of the given statement.
Balance of payments of a country includes comprehensive information about the money inflows and outflows. The balance of payments is a sort of an account that reflects the money transfer between the economy of a specific country and the rest of the world. The balance consists of the current, capital and financial accounts.
A current account includes the component of trading with goods and services as well as incomes and transfers. The income component shows inflows of income from abroad (specifically, labour remuneration and investment income) and incomes transferred from abroad. Transfers include current transfers between the residents and non-residents of a country (for instance grants, financial assistance).
A capital account consists of purchase/assignations of capital transfers and non-produced non-financial assets. One of the forms of capital transfers is the debt relief.
A financial account includes direct investments, portfolio investments, financial derivatives, other investments and reserve assets.
If a country runs current account deficit; that is, if more money leaves the country as compared to what comes in, the gap is covered by the financial account (by investments, taking debt and a decrease in monetary reserves).
Table 1 reflects the tendencies of change in the current account deficit. As of 2017, the current account deficit decreased by USD 531 million as compared to the previous period and equaled USD 1,316. The share of deficit in the GDP of the respective period constituted 8.7% that is one of the lowest indicators in the recent decade and only falls behind the 2013 indicator (5.9%).
While discussing the tendencies of the deficit formation, it should be mentioned that trade of goods remained the main causal factor behind the negative balance. The balance of the trade of goods decreased insignificantly (0.74%) as compared to the analogous indicator in 2016 and equaled USD 3,840 million. The given deficit is partly balanced by the positive balance of the trade of service (USD 2,069 million), mostly due to the profit received from tourism (USD 2,288 million).