Budget deficit 2013
13 February, 2014
Budget deficit 2013
The predicted deficit in the state budget for 2013 came true. Revenue fell short of projections by around GEL 614 million, or approximately 8.3% of the deficit. Declining economic growth and politics are key factors. Final statistics will be released by April, when Parliament will discuss the implementation of last year’s state budget. But based on preliminary data disclosed by the Ministry of Finances of Georgia, the deficit is caused by reduced tax collection, particularly in Value Added Tax and profit
taxes that lost around GEL554 million and GEL 117 million, respectively, shrinking by 16% and 13%.
Merab Janiashvili, an economic analyst with the Young Financiers and Businessmen of Georgia, says the budget of 2013 was excessively optimistic and the deficit was unavoidable. The budget for 2013 planned for 6% economic growth and 3% inflation, whereas the economy grew only by 3.1% as preliminary statistics indicate.
Besides, inflow of Foreign Direct Investments (FDIs) fell much below the expected USD 1 billion. Based on the available statistics, USD 697 million of FDIs entered Georgia in January-September of 2013 while USD 659 million left. Political instability and one year of cohabitation rule affected the investment climate.
“Cohabitation played a wrong game with the country’s economy,” Janiashvili told Georgian Journal. “On the one hand government assured that everything was going smooth, while then President Saakashvili who represented the opposition party was trumpeting on the international level that things are very bad - that created political instability. Businessmen were not certain how things might have been developing, and restrained from investing and re-investing in their business projects - that caused the decrease in VAT and profit taxes.”
However, he admits that the budget was overestimated since the first two quarters data of 2013 had clearly shown that the economy was stagnating and the targeted 6% growth was impossible. But government did not acknowledge the fact until the fall.
Davit Onoprishvili, Head of the Budget and Finance Committee at Parliament, acknowledges that the lower than expected inflation and economic growth rates affected income in 2013. However, he does not agree that the budget had any planning problems or was overestimated. According to him, when the draft budget for 2013 entered parliament, the targeted economic growth of 6% looked realistic and International Monetary Fund also predicted 5-6% of growth.
However, later the global economy slowed. The economy slowed its pace by one-third – and despite IMF’s forecast, Georgia and the entire region was affected. Cohabitation and policies of the previous administration also heavily impacted the Georgian economy and budge deficit.
“It was really hard for the ruling power Georgian Dream to control the economic situation,” Onoprishvili said in an interview with GJ. “Due to cohabitation, it did not have full economic levers at hand - that created setbacks in infrastructure projects. The former government practiced nepotism schemes during the tenders on infrastructure projects, and once new government tried to streamline this process it took time and inhibited the projects. Besides, the blackmailing activity of the ex-president undermined the investment inflow. On the other hand, the previous authority practiced advance collection of VAT and that also affected VAT-based incomes in 2013. But the process started recovery as soon as cohabitation ended in October, and the economy grew by 4.3%, 7.8% and 8.4% respectively in October, November and December of 2013.”
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