State Budget 2014 – more social, less pragmatic
19 December, 2013
State Budget 2014 – more social, less pragmatic
The Georgia’s State budget for 2014 is very likely to hinder economic growth. Analysts believe it assumes social responsibilities much higher than can be afforded, and infrastructure and economic projects should be funded instead.  The Georgian government approved its main fiscal document on 12 December. State budget revenues slightly exceed GEL 9 billion - roughly GEL 300 million of growth compared to the 2013 budget.
Forecasts for economic growth and inflation stand at 5% and 3.2% respectively. Overall, the GDP is
expected to increase to GEL 29.3 billion. The state plans to take on GEL 1.6 billion of state debt for two purposes: to clear part of the previous foreign debt, and also to provide banks with GEL 200 million of cheap financial resources for the economy.
The 2014 budget duplicates the 2013 trends to prioritize social support and healthcare, education and agriculture. The new budget increases only by approximately GEL 300 million; 5% predicted GDP growth is rather low for a developing country like Georgia but financing of social and health care increases by GEL 313 million, to GEL 2.658 billion.
Meanwhile, education funding increases by GEL 84 million (GEL 754.3 million in total); agriculture funding increases by GEL 22.5 million (GEL 263.5 million in total). Along with social and health care, that comes to around 40.4% of the total budget for 2014.
Soso Archvadze, an economic analyst, thinks the redistribution of budgetary expenditure next year is more social than pragmatic. He points out that the tax burden in the Georgian GDP is less than 25%, while the social (including education) expenses are within 40% of the state budget.
“It means that the budget takes much higher social responsibilities than the country can really afford. It is more moral than pragmatic,” he said, adding that this will certainly have an impact on economic development. Archvadze believes that the Georgian economy might grow by 1-1.5% higher than the predicted 5% next year if the state budget was financing more infrastructure and economic projects. However, he admits that the state cannot escape its social responsibilities, since “the state has a moral obligation toward the socially vulnerable and has to fulfill its social duty.”
The Center for Economic and Policy Research also recommends being more economic-oriented and thriftier on social expenses until the speed of economic growth (that dropped this year by more than 50%) recovers again. It is an open secret that two-digit GDP growth is crucial for countries in a transition economy like Georgia, in order to experience real development. This year the economy is expected to grow by 2.5%, instead of the previously forecasted 6%.
The 2014 budgetary parameters make some economists worry that the situation will not be much better. Demur Giorkhelidze, an economic analyst, fears that 3.2% of targeted inflation is too high for the predicted 5% growth of GDP. He doubts that even this 5% growth is achievable - and only if government undertakes a prudent economic and monetary policy in cooperation with the National Bank of Georgia.
“It is very important that at least one big investment project, at least USD 200 million in cost, will be implemented in the country. We need investment in the economy directly, in the production sector, and not in infrastructure and trade only, as we witness today,” he said.
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