The FINANCIAL — Salome Samadashvili: “The currency depreciated under the Georgian Dream government and the budget of the Ministry of Defence decreased as compared to 2014 because we have to make calculations in USD.”
Resume: In 2019, the planned budget for the Ministry of Defence of Georgia is nearly GEL 875 million whilst itsactual budget was GEL 667.4 million in 2014. However, whilst analysing the budget dynamics, it is necessary to consider relative figures as well as absolute numbers. In the case of the Ministry of Defence, its expenditures to GDP ratio decreasedin 2019 from 2.29% to 1.95% as compared to 2014 despite a growth in nominal funding. In addition, the share of the Ministry’s allocated funds in total budget expenses decreased from 8.16% to 7.42%. Therefore, the context of Salome Samadashvili’s statement is somewhat true.
However, Salome Samadashvili got her results from converting the absolute figures in USD instead of making a correct analysis. Therefore, her line of argument is inaccurate because it is inappropriate to calculate a budget in a foreign currency. It is possible that as a result of the changes in the exchange rate, less goods and services are purchased in USD although this cannot be interpreted as a “decreased budget” because such kinds of expenses are only a part of the budget and not the whole. Naturally, the Ministry of Defence’s expenses are made in accordance with the contracts concluded both in GEL and USD as well as in other currencies, a part of which might have depreciated against GEL (for instance UAH).
That part of the statement where Salome Samadashvili addresses the Government of Georgia and says “…you depreciated the currency…” is largely speculative. The GEL exchange rate is affected by internal and external objective factors which are beyond the Government of Georgia’s control. Of importance is the USD index dynamic whose sharp growth trend coincides with the start of the GEL depreciation process in the third quarter of 2014. Taking this into consideration, saying that the Government of Georgia has depreciated the currency is incorrect. However, together with the external factors, certain actions or inactions of the Government of Georgia also contributed to the GEL depreciation (a low economic growth rate, the imposition of a stricter visa regime on a number of countries, poorly planned reforms, unequal spending of state finances, etc.).
Analysis
On 4 April 2019, United National Movement MP, Salome Samadashvili, stated: “In fact, the budget of the Ministry of Defence decreased because the national currency depreciated under your government and we have to calculate the budget in USD. Since 2014, the Ministry’sbudget has decreased by USD 80 million.”
The Ministry of Finance of Georgia publishesits budget indicators. These indicators are given in Georgia’s state budget chapter of allocations. Whilst analysing budget dynamics, it is necessary to consider relative figures together with nominal ones. In the case of the Ministry of Defence’s budget, the expenses to GDP ratio, as well as their share in total budget expenses, have decreased in 2019 as compared to 2014.
Graph 1: Ministry of Defence Budget Dynamics in 2014-2019 (GEL Million)
Source: Ministry of Finance of Georgia
In 2019, the planned amount of the Ministry of Defence’s budget is nearly GEL 875 million whilst its actual budget was GEL 667.4 million in 2014. The share of the Ministry’s allocated funds in total budget expenses decreased from 8.16% to 7.42% and the expenditures to GDP ratio decreased from 2.29% to 1.95%. Therefore, the context of Salome Samadashvili’s statement in regard to a decrease in the budget is somewhat true. That said, her line of argument which leads to the aforementioned conclusion is inaccurate because it is inappropriate to calculate a budget in a foreign currency. It is possible that as a result of the changes in the exchange rate, less goods and services are purchased in USD. However, such kinds of expenses are only a part of the budget and this cannot be interpreted as a “decreased budget.”
That part of the statement where Salome Samadashvili addresses the Government of Georgia and says “…you depreciated the currency…” is largely speculative. The GEL exchange rate is affected by internal and external objective factors. Under the Georgian Dream government, certain of its actions or inactions, together with the difficult economic and geopolitical situation in the region, also contributed to the depreciation of GEL against USD. One of the clear-cut indicators here is the USD index which has had a growth trend since 2014 and is beyond the Government of Georgia’s control.
By Vakhtang Demuria
