New Georgian Pension System to Slow Net Wage Growth

The second issue is why the Government and not the private sector. Gulbani considers that the only private sector in Georgia capable of providing this kind of service is the banking sector. “However, it can be clearly stated that it would definitely be riskier than in the case of the Government,” stated Gulbani. “The banks already own 93% of the whole Georgian financial sector and the major share of financial resources flows through several commercial banks. Lack of competition in the financial sector already damages the economy of Georgia and private sector involved in pension reform would worsen the situation. In developed economies pension funds are quite independent and their capitalization is almost equal to the banking sector. Georgia does not have such kind of strong private pension funds and that’s why the Government is forced to carry out this reform itself,” Gulbani told The FINANCIAL.

Zurab Japaridze, Head of political party Girchi, completely disagrees with the idea of pension reform. In his public speech he said that, in fact, the reform is an agreement on a financial scheme between the Government of Georgia and the banks, and it has nothing to do with the improvement of pensioners’ living standards. “The Government is going to collect millions from people, and the law about pension reform doesn’t say anything about the responsibilities of the Government of Georgia,” said Japaridze.

In 2019, the collected pension fund will be approximately GEL 900 million. According to the draft law, for the first five years, collected money could only be invested in less risky portfolios and the limit for foreign investments is 20%. So, in the year 2019, money invested in foreign portfolios can only be GEL 180 million. The remaining GEL 720 million will be invested in Georgia. 20% (GEL 144 million for 2019) might be invested in the securities of Georgian companies. Apart from this, according to the law, the Government of Georgia has permission to borrow the whole GEL 720 million (100%) from the pension fund. In addition, about GEL 675 million (75%) can be saved in the deposits of corporate banks. The draft law of the pension reform clearly reveals the interests of the Government of Georgia, banking and business sector. There is no way that the reform will be beneficial for people; no successful foreign experience; no stock exchange market development; no economic growth support; the only thing that the reform supports is Government spending and the business sector and in addition, no one is taking responsibility for giving money back to people if the system fails,” said Japaridze.

The majority of economists are sceptical about this reform, and the Government’s claims that pensioners’ living standards will be improved. However, one benefit that can be unambiguously stated is that the Government will not be able to speculate with GEL 10-20 increased pensions before the elections.