Generally, the total government debt figure which consists of external and internal debts is always a focus of constant scrutiny. The Minister of Finance is speaking about the total debt statistics but refers to this as the external debt which is perhaps a technical mistake. According to 2022’s planned figures, the total debt to the GDP ratio is indeed 39.5% which is 0.9 of a percentage point less as compared to 2019 and a significant improvement since 2020 when government debt exceeded the legally allowed 60% threshold.
On the other hand, Lasha Khutsishvili speaks about the government’s consolidation in terms of debt reduction. However, it needs to be clarified that such a reduction of government debt as compared to 2019 is partially attributable to the growth of the nominal GDP which was precipitated by a critically high inflation rate together with a high economic growth rate. At the same time, the decrease in the GEL denominated external debt was precipitated by the appreciation of the GEL exchange rate in 2022.
Therefore, FactCheck gives the Minister’s statement a MOSTLY TRUE verdict because his statement is true. Nevertheless, additional information is needed in order to see the full picture and the statement also contains a technical flaw.
Analysis
The Minister of Finance of Georgia made the following statement about debt statistics at a press conference: “The external debt, which had exceeded the 60% threshold, was substantially reduced. This year, it will be lower than 40% and within the margin of 39.5% which amounts to a decrease of nearly 20 percentage points. There was a significant consolidation in this regard (from the government).”
The figures in Lasha Khutsishvili’s statement correspond to the total government debt which consists of the total sum of external and internal debts. Therefore, referring to this indicator as external debt is perhaps a technical flaw. In general, it is more relevant to analyse the debt to the GDP ratio in order to summarise the debt burden. The estimated government debt to the GDP ratio for 2022 is 39.5% which is 0.9 of a percentage point less as compared to 2019. Therefore, this means a return to the pre-pandemic level which is a positive fact. The government debt to the GDP ratio is sharply lower as compared to the pandemic’s figures in 2020-2021. In 2022, the debt to the GDP ratio exceeded the 60% threshold whilst it dropped to 45.5% in 2021.
Table 1
| 2018 | 2019 | 2020 | 2021 | 2022* | 2023* | |
| Internal Debt | 3,250 | 4,166 | 6,186 | 5,845 | 7,100 | 8,454 |
| External Debt (GEL) | 14,098 | 15,750 | 23,467 | 23,967 | 21,375.7 | 22,531.7 |
| External Debt (USD) | 5,492 | 7,162 | 7,737 | 7,511 | 7,914 | |
| Government Debt | 17,349 | 19,916 | 29,654 | 29,812 | 28,476 | 30,986 |
| Internal Debt to GDP Ratio | 7.3% | 8.5% | 12.6% | 9.7% | 9.9% | 10.6% |
| External Debt to GDP Ratio | 31.6% | 32.0% | 47.6% | 39.8% | 29.6% | 28.3% |
| Total Debt to GDP Ratio | 38.9% | 40.4% | 60.2% | 49.5% | 39.5% | 38.9% |
Source: Ministry of Finance of Georgia
In accordance with 2022’s estimates, there are plans to reduce the total debt by nearly GEL 2.6 billion as compared to 2021. However, the growth of the absolute amount of government debt constitutes GEL 5.6 billion. Therefore, the reduction of the debt to the GDP ratio is not precipitated by a decrease in debt but by the growth of the nominal GDP as compared to the pre-pandemic period. Therefore, it needs to be added that the sharp reduction of the debt to the GDP ratio is also stipulated by high inflation together with a high economic growth rate, thereby resulting in the sharp growth of the nominal GDP figures. It is estimated that the nominal GDP in 2022 will be GEL 72.6 billion whilst it was GEL 60.2 billion in 2021 and GEL 49.4 billion in 2019. Of note is that in 2020, the nominal GDP increased to only GEL 14 million after the real economy shrank by 6.8% which caused a further growth of the debt to the GDP ratio.
Of additional note whilst speaking about debt growth is the volatility of the GEL to the USD exchange rate. In particular, the new exchange rate is applied for the calculation of not only the added debt in a period (the debt taken in one year) but the balance figure of the debt previously accumulated (the unpaid part of the debt taken in the past) after changes in the exchange rate. In the past, when politicians expressed criticism over debt growth, FactCheck regularly highlighted that the debt growth was partially caused by GEL depreciation vis-à-vis USD. On the other hand, the reduction of the debt to the GDP ratio by 20 percentage points is partially attributable to the GEL exchange rate appreciation vis-à-vis USD. Throughout 2022, GEL has been appreciating against USD despite this period of high economic uncertainty in the wake of Russia’s invasion of Ukraine in February.
Author – Vakhtang Demuria
Category: Economy
