Mikheil Saakashvili: “In my time, debt decreased by 50% as compared to Shevardnadze’s time. The Georgian Dream has doubled the debt in six years.”

2 mins read

The FINANCIAL Verdict: FactCheck concludes that Mikheil Saakashvili’s statement is HALF TRUE.

Resume: In 2003-2012, the GEL denominated absolute figure for the public debt increased by 69% and the government debt increased by 78%.

Under the Georgian Dream’s government, public debt growth reached 86% whilst government debt growth constitutes 96%. However, it seems that the former President speaks about the relative figures of debt instead of the absolute figures.

In general whilst discussing debt, it is appropriate to use relative and not absolute figures. In order to properly assess the debt burden, the total debt to GDP ratio is used. In 2003, Georgia’s public debt to GDP ratio was 63.3%. In 2012, this figure decreased by 45% (28.5 points) to 34.83%.

In the same period, the government debt to GDP ratio decreased by 43% (24 points). Under the Georgian Dream’s government, the public debt to GDP ratio increased by 28% (9.8 points) and the government debt by 35% (11.4 points) which means growth by the factors of 1.28 and 1.35, respectively. Therefore, in the case of an analysis of relative figures, the trend of changes is compatible with the content of Mikheil Saakashvili’s statement, although the figures he names are exaggerated.

At the same time, the GEL exchange rate in the last years needs to be taken into account because it has a significant impact upon GEL denominated debt figures. In turn, the fluctuation of the GEL exchange rate, which started at the end of 2014, was mostly stipulated by factors which were beyond the Government of Georgia’s ability to influence. However, certain actions or inactions of the government exerted an additional negative influence upon GEL depreciation.

See also  Fitch Affirms Georgia at 'BB'; Outlook Stable

Analysis

On 1 October 2018, on air on the talk show, Archevani, Mikheil Saakashvili stated: “In my time, debt decreased by 50% as compared to Shevardnadze’s time whilst the Georgian Dream doubled the debt.”

Under the United National Movement’s government, the GEL denominated absolute figure of public debt increased by 69% and government debt increased by 78%. Under the Georgian Dream’s government, public debt growth reached 86% whilst government debt growth constitutes 96%.

The former President of Georgia has not specified whether or not he referred to the public debt or the government debt but the dynamic is identical in both cases.

Graph 1: Public Debt and Government Debt (GEL Million) in 2003-2017


Source: Ministry of Finance

Whilst discussing public and government debt, we use relative figures and not absolute figures because a specific absolute number could be very big for a small-size economy and marginal for a large economy. Using the total debt to GDP ratio enables us to properly assess a debt burden.

Perhaps Mikheil Saakashvili was speaking about relative figures in his statement. We need to see the total debt to GDP ratio in order to fully assess the debt burden. The respective data are given in Graph 2. In 2003, Georgia’s public debt to GDP ratio was 63.3%. In 2012, this figure decreased by 45% (28.5 points) to 34.83%. In the same period, the government debt to GDP ratio decreased by 43% (24 points). In 2012-2017, the public debt to GDP ratio increased by 28% (9.8 points) and the government debt by 35% (11.4 points) which means growth by the factors of 1.28 and 1.35, respectively.

See also  Fitch Affirms Georgia at 'BB'; Outlook Stable

Graph 2: Public and Government Debt to GDP Ratio


Source: Ministry of Finance

Whilst noting the growth of debt, the fluctuation of the GEL exchange rate in a given period is an important factor. In particular, as a result of exchange rate changes, a new exchange rate is applied not only for newly added debt in the aforementioned period but for the entire volume of already accumulated debt. Therefore, the growth of government debt was largely stipulated by a re-calculation of the pre-2012 accumulated government debt in accordance with the new exchange rate. For further information, given the GDP growth rate, domestic debt to GDP ratio would have increased if we exclude the exchange rate effect for debt accumulated by December 2012 although the foreign debt to GDP ratio would have decreased. Georgia’s nominal GDP grew by 45.38% in 2017 as compared to 2012 whilst the net growth of the country’s foreign debt in the same period was only 44.35%. In other words, Georgia’s economy grew faster in 2013-2017 as compared to its foreign debt.

Table 1: Government Debt without Exchange Rate Effect (GEL, Thousand)


Source: Ministry of Finance

As illustrated by the table, the decrease in the foreign debt to GDP ratio would not have fully offset the domestic debt growth effect and the total government debt to GDP ratio would have increased in any case by 1.87 percentage points to 34.42%.

 

Leave a Reply