50% Growth in State Budget -Trick or Treat?
12 July, 2012
50% Growth in State Budget -Trick or Treat?

The annual growth of Georgian state budget will make roughly 50% in the coming four years, amounting to GEL 40 billion in total, new Prime Minister of Georgia  Vano Merabishvili pledges. To some experts such growth of state purse seems like a pre-election trick, some think the figure is quite realistic if the corrupted officials will be properly shaken and rampant monopolies discharged. 

 

Georgian state budget will almost double each year within 2013-2016 according to Merabishvili’s plan. The cumulative budget of

coming four years should make around GEL 40 billion, approximately GEL 10 billion each year, which almost by   50% exceeds the current state budget of GEL 6.8 billion.

Social, education and agriculture projects will have budgetary priorities: pension funding will total GEL 6 billion and health insurance will be its integrated part, health insurance and social allowances get GEL 3-3 billion apiece, and GEL 4-4 billion will support education and agriculture.

GEL 1000 face-value vouchers will be delivered to each Georgian family during four year [GEL 250 per year] that tentatively will be spent on communal, medical or education needs. New PM also promised to attract USD 4 billion of Foreign Direct Investments (FDIs), increase tourist inflow to 7 million and create 220 thousand new jobs through FDIs and tourism development only.

Georgian experts think the new program kicked off by ex-Interior Minister and now PM Merabishvili on the threshold of parliamentary elections scheduled in this October is a part of pre-election campaign in fact to challenge the program of political tycoon Bidzina Ivanishvili, Leader of Georgian Dream opposition party, and its implementation depends on the elections results.

What economic analysts are pondering on is how the new PM is going to find financial sources to double the state budget and which economic model will be applied. Very likely the active liberal economic model will swap places with the state regulation.

“Merabishvili spoke of expenditures but he did not name the income sources,” Demur Giorkhelidze, an economic analyst, said in the interview with Georgian Journal. “He did not speak which economic model they choose in fact. My guess is that very likely the state run Partnership Fund will be the basement of the program and the state will be the major investor and job creator that is completely irresponsible thing in the epoch of liberalism.”

He worries that people will not be a part of Merabishvili’s economic program for he did not drop a word on Small and Medium Enterprises (SME) development that is the engine of economy and job creation as the best world practice shows.

“If there is no economic activity on the large social scale no state interference will bring results,” Giorkhelidze said.

He does not rule out that the grow will occur on the expense of inflation since economy will grow at fast speed however he worries that  fast growth may cause overheating of the economy of which problem Merabishvili did not speak.

Ditrikh Muller, an economic analyst with Georgian Investment Group, thinks Merabishvili’s program is quite realistic if government undertakes reasonable actions. He approves to shift the crazy liberal keys into the state regulation keys for a while just like the entire world is reconsidering liberal economic principles due to crisis. The impending second tide of eurozone crisis can do a service to governmental plan to support agriculture but after the sector recovers the state should reduce its interference and sell out its share to private investors.

“Prices on agriculture technique will drop significantly in the crisis and if government sets up mini processing plants in rural regions, it can procure equipment for halved prices abroad, that can be done within 2 years, it can increase production, create jobs, reduce import and insure economic growth,” Muller elaborates.

But to achieve a real result the program should be based on a complex of activities.

“If monopolies will be discharged, credits access increase, Georgian national currency [value of which is increased artificially] will be devaluated to its real value to boost export and compete the overwhelming import, and focus put on agriculture, the plan is good,” he said.

To find due funding for the program Muller does not rule out that the money-extortion scenario of 2004 [when the rose-revolution-government extorted millions from corrupted top officials of Shevardnadze’s regime through procedural deals] can be repeated. And this time the ex-interior minister Merabishvili [who is believed to have discrediting evidences on everyone] can press on his comrade active corrupted officials as well as monopolists and raise sufficient funding.

Giorkhelidze agrees that government may press on monopolists to find due sources but he does not rule out taking a new state debt too that is not recommended against the backdrop of the already heavy Georgian foreign debt burden.

“If they force monopolies [been pampered so long by government] to fork out money they really can find income sources,” he said elaborating that monopolists in pharmaceutics, oil and energy sectors get USD 1.5-2 billion over profit margin.

Soso Archvadze, an economic analyst, finds the 50% yearly growth of the state budget quite realistic partly due to targeted  6% inflation and partly thanks to two-digit growth in GDP.

“If we take into account that nominal GDP will increase by GEL 3-4 billion at average each year by 2016, the entire GDP growth will be GEL 16-17 billion compared to 2012. Plus inflation and certain taxation preferences envisaged for agriculture sector that will enable people involved in this sector to create wealth. These figures are not fantastic,” he explained to GJ. However Archuadze finds the program imperfect as it was drafted in haste for pre-election campaign and its implementation depends on the results of the election.

 

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