The FINANCIAL — “If the interest rates of loans become higher then monetary policy will no longer be effective. If the GDP is low and there are high levels of unemployment but with lower interest rates, this will support GDP growth,” Andrea Bubula, Ph.D in Economics from Columbia University, told The FINANCIAL. “The level of unemployment is close to 60% in reality,” Avtandil Silagadze, Doctor of Economic Science at TSU, told The FINANCIAL.
The average monthly salary nowadays is GEL 799.8 and the level of unemployment is 15% officially. The annual interest rates on deposits and loans in the national currency are 8.8% and 21% respectively. The interest rates on deposits and loans in foreign currencies are 12.9% and 5.3%, according to data of National Bank of Georgia. And the total amount of deposits and loans are GEL 9,432,000,000 and GEL 10,541,000,000 respectively.
“The amounts of savings, which are generally in the form of deposits, are very high and very large in number nowadays,” Silagadze, Doctor of Economic Science at TSU, told The FINANCIAL “But that doesn’t mean that the majority of the population has deposits in banks. On the contrary, it is a small group of businesses which have deposits in banks. People of course need to save money too, but because of the generally low income and high unemployment levels, they have no money to save.”
“The population knows very well what share of their income they should save or what amount they should spend. So of course a large portion of the population does have savings, but quite simply many can’t afford it. Only a comparatively small part of the population is able to save money, but even this part of the population does not put their money into the banks,” he added.
“The number of savings in our country is quite high. They are very important for times when people urgently need money. On the other hand, savings are also good for the economy, because the money that is put into the banks is used for making investments. This is then good because a certain percent of the population benefits from these. However, there are also many term deposits and loans being granted in the economy. Savings are of course very useful for the population because they get interest from these amounts and also have a guarantee that in urgent cases they will have instant access to money. Term deposits are used for credits,” Silagadze said.
“Interest rates on deposits have decreased in recent times, and this decreasing trend is likely to continue in the future. But the rates are much lower in the West, so we are not yet near to that level. In Georgia the interest rate on credits is very high, and when referring to the type of person who saves money in a bank, that same person cannot afford to take out money as a credit. He has to pay much more for interest than he is able to. The difference between the interest rates on deposits and loans should be much less. The difference should be decreased as at the moment the difference is too great. Before now, the interest rates were much higher. Now the decreasing trend is continuing and in the future this will help the development of the economy. We should get closer to the level that there is in Europe,” he said.
“When the economy is developed and there is stability in the country, in this case we will have a decreasing trend. At the moment, when a bank issues a loan, if the operation is risky the bank will have high interest rates. So when the risks are lower, the interest rates will also be lower. On the other hand there are associated costs; large administrative costs, banking costs,” Silagadze said.
“We also have an issue with minimum wage. This involves a number of products according to which the wage amount is decided. The less products that are included, the lower the wage. But I think that people need a lot more than is included in the consumer basket.”
“As for the average salary, it is subject to uneven distribution. The average salary amount is calculated according to the fact that a small group of people have very large wages while the majority of people have very low salaries. As a result the average salary we get becomes GEL 800. But this is actually very far from what the vast majority of the population receives,” Silagadze said.
“There is a problem with unemployment in Georgia. It has decreased slightly since the new government came to power. But the real unemployment rate is much higher than the official statistics show. This is because the employment statistics are calculated according to the fact that people who have a plot of land are considered employed. But in reality the majority of those people have not cultivated the land for years and receive no income from it. However, because of this they are considered employed when in reality they have no job. Realistically speaking, the number is not 15% but could be up to 60% – those who cannot find jobs and have no income. Even if we accept the number of unemployed at 15%, this is too high. In normal countries the unemployment level is 5-6%. To achieve this level we need to create more jobs, and aid the development of small and medium-sized businesses. This will cause the reduction of import from foreign countries and stimulate the production of goods that can be made in our country,” he said.
“The share of small and medium-sized businesses is about 15-20%, the rest is made up by big business. The share of small and medium enterprises should increase. However, such businesses find it difficult to borrow money from banks because they need to provide property as a guarantee. But they can’t afford this. These problems cause small and medium-sized businesses to not be able to develop in our country. Meanwhile, what is really needed is a large number of jobs in the area. The state should develop a mechanism which will help small and medium businesses to get access to financial resources. If this problem isn’t solved then economic development will not occur and jobs won’t be created,” Silagadze added.
“If the interest rates of loans become higher then monetary policy will no longer be effective,” Bubula, Ph.D in Economics from Columbia University, told The FINANCIAL “If all market conditions are balanced then monetary policy will only have an impact on inflation. But if there is no equilibrium in all markets, monetary policy affects inflation and economic activity, the GDP and living level. If the GDP is low and there are high levels of unemployment but with lower interest rates, this will support GDP growth.”
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