Georgia Is Resilient to Fiscal Risks
11 October, 2012
Georgia Is Resilient to Fiscal Risks

Georgia is fiscally resilient to external shocks in the coming 3 years inasmuch as the state debt of the country remains beyond the critical level, PMCG research center concluded, on the basis of testing the hypothetical shock scenarios.   Gross external debt of Georgia to GDP ratio for the last four quarters (period from the third quarter of 2011 up to the second quarter of 2012) amounted to 78.7 percent and 94.2 percent of the Gross External Debt of Georgia

is denominated in foreign currency, National Bank of Georgia informed on October 2, 2012.

Gross External Debt of Georgia by June 30 of 2012 amounted to USD 12 billion of which USD 3.9 billion or 32.2% is public sector debt and USD 706 million or 5.9% is the debt of the NBG, USD 2.1 billion or 17.3% comes with the banking sector’s debt, USD 2.5 billion [20.6%] makes the other sector’s debt and USD 2.9 billion or 24 % is intercompany lending.

Fiscal stability is an essential precondition for sustainable economic development of any country and the increasing debt figures makes sector pundits incline to analyze  how fiscally resilient is Georgia toward external fiscal risks in the face of the impending second tide of economic crisis.

The financial crisis of recent years when even developed countries faced default made clear that the preliminary research and assessment of fiscal resilience of the country is crucial. To test Georgia’s fiscal resilience toward possible negative challenges the PMCG experts decided based on two hypothetical stress models: reduction of the share of tax incomes in the GDP and increase of the state debt to the GDP. These are the key major fiscal risks to Georgia as far as tax income makes 84% of the state budget while according to the Act of Economic Freedom, the budgetary deficit of 2012 should not exceed 3%, budgetary expenses - 30% of GDP and the state debt must be kept under 60% of GDP. Moreover, based on the similar law, government cannot increase the common state taxes without calling for the referendum. PMCG decided to research how realistic the parameters built in the Economic Freedom Act can be.

First and foremost the research focused on possible deterioration of three major influential macro-economic factors such as real growth rates of GDP, inflation and currency. According to the forecast data of the Ministry of Finances of Georgia, the economic growth rate in 2012-2016 stands at 6-7% tentatively. PMCG researched what happens if economic grow slows down in 2015-2025, the targeted inflation will slip from the currently active 6% [fixed for 2012-2015] to 2% within 2016-2025, and Georgian national currency [that stands at GEL 1.65 against USD1 at the moment] will devaluate rapidly.

Currency devaluation presumption is essential inasmuch as 82% of Georgian state debt comes with the foreign debt and devaluation of national currency may enhance the foreign debt volume and the fee paid for the debt service calculated in the US dollars.

The research group came to conclusion that in pursuance with the methodology of the International Monetary Fund (IMF), Georgian fiscal resilience falls in the low risk group as far as the state debt burden is less than other criteria and do not reach critical levels during the 3-year shocks.

The test scenarios showed that the 3-year shock to GDP growth cannot affect the fiscal resilience of the country and the debt service terms as well as long-term macro-economic stability indicators do not deteriorate significantly. Even if national currency devaluates by 50% thus triggering the rapid growth of the state debt volume its share may reach just 40.5% of GDP by 2013. The most troublesome can be the combined shock of three major macro-economic indicators: when the economic growth reduces, budgetary deficit increases and the national currency devaluates simultaneously - this seems to be the most realistic scenario to PMCG experts likewise the crisis in 2009-2010 rather than development of the said shocks separately. This combined shock test showed that if it occurs in 2013-2015 the Georgian state debt share will get closer to critical level by covering 50% of GDP. However, the solvency capacity remains below the critical levels: the share of the debt service fee against the export and the budgetary income volume increases to 10% and 17% respectively while the critical levels stand at 25% and 35%.

Although the state debt of Georgia is far below the critical level [it makes 33% of GDP by 2012] and the budgetary system of the country is reliable one should always remember that the gross foreign debt of Georgia is USD 12 billion that has an influence on international credit ratings of the country, the PMCG reminds. It accentuates that these credit ratings define the interest rates for future liabilities Georgia may take at international market as well as the access and the price of financial sources for financing the state budgetary deficit. Moreover, if the private sector faces insolvency problems against their foreign liabilities the state would be liable to solve the problem in order to detain economic stability of the country.

By far Georgia is able to retain the fiscal sustainability in both middle-term and long-term prospects if it insures proper fiscal management, PMCG believes. PMCG recommends not to use the 3% cap limit of budgetary deficit [only in emergency case] and undertake the very well  balanced state budget [with precise forecasts on incomes and expenses] that lays ground to fiscal resilience of the country and encourages economic development at large that means no extra state debts.

Print
Other Stories
Business Positive – Successful radio program from Radio Positive
Starting point of radio program Business Positive is to meet interesting people, communicate with them and deliver information that is interesting for the audience.
A factory of electric vehicles to be built in Kutaisi
Prime Minister Mamuka Bakhtadze stated that a factory of electric vehicles will be built in Kutaisi at the presentation of the Aigroup business group.
Qvevri-shaped hotel complex to be built in Telavi
A Qvevri-shaped hotel complex is scheduled to be built in the village of Shalauri in Telavi, Kakheti (east part of Georgia).
Georgian designers presented at Fashion World Tokyo 2019
The products of 11 Georgian designers are showcased at Fashion World Tokyo 2019,
Silknet raises $200 million in Eurobond issue
27 March 2019 - JSC Silknet (“Silknet”), one of Georgia’s leading telecommunications operators, has successfully priced a debut $200 million 5-year 11% senior unsecured bonds issue (the “Notes”).
Pistachio trees will be planted in Georgia
Dozens of hectares of Pistachio are planned to be planted in Georgia this year.
Toyota Safety Sense and Hybrid Technology
Toyota Caucasus, has presented two new models the 5th generation RAV4 and the 12th generation Corolla at Rustavi International Motorpark, several days ago.
Bidzina Ivanishvili “became number one oppressor of businesses in Georgia” - ICC Georgia chairman Fady Asly
Mr. Ivanishvili promised the business community to protect them from harassment and pressure, unfortunately his words died with the sunset of that day
The best brands of Belarus will be exhibited on a large-scale exposition in Tbilisi
"The Belarusians like to come to Georgia to relax near the sea in Batumi as well as to stay in sunny Kakhetia."
Don’t treat business like a hooker! - Georgian businessman Vasil Soprpmadze addresses politicians
Businessman Vasil Sopromadze, founder of the company "Fresco", addresses politicians
RAV4 No Compromise and Corolla Set to Impress – Two New Cars Presented by Toyota
Toyota Caucasus, the company constantly aspiring to greatness, has presented two new models the 5th generation RAV4 and the 12th generation Corolla.
Mamuka Khazaradze quits TBC bank, does not sell the TBC Bank share
I made a decision to leave TBC bank where I spent 27 years of my life
10 Reasons to buy an apartment in the suburbs
There is a tendency for Tbilisi dwellers to move from central parts of the capital to the suburbs.
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
19.04.2019
20.04.2019
USD
1
USD
2.6939
2.6939
EUR
1
EUR
3.0323
3.0323
GBP
1
GBP
3.5053
3.5053
RUB
100
RUB
4.2087
4.2087
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.6939
EUR
1
EUR
3.0323
GBP
1
GBP
3.5053
RUB
100
RUB
4.2087
April 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30