The Lari’s Black Friday
11 December, 2014
The Lari’s Black Friday
By the end of last week, the lari experienced yet another Black Friday, dropping hard against the dollar with the official exchange rate being 1.9527 GEL per 1 USD. Commercial banks and currency exchange booths took it even further, selling the dollar at 2 GEL. The lari dropped in relation to the euro as well, with price of 1 EUR becoming 2.5 GEL.

Meanwhile, the government continues claiming that the country’s financial and macro-economical stability is not threatened. Everyone waits
for Georgia’s National Bank to sell several dozen million dollars more to save the dropping exchange rate. However, the experts say currency reserves are on the brink of depletion, since last year’s December-January budget crash cost them $470 million. The only thing both the government and the experts agree on is that the national currency will not return to its old value.
President of Georgia’s National Bank also broke his silence, declaring that the stability of prices is the main objective of the country’s financial institutions. He warned both market participants and ordinary citizens against making impulsive decisions when it comes to converting lari into dollars, saying that they will end up as losers in the end.

“The processes we’ve been seeing lately, they have largely been caused by the hysteria of market participants” - Giorgi Kadagidze

, President of National Bank: “Not only are we dealing with the strengthening of the dollar, geotv.gebut also with the weakening of internal currency inflow sources. However, according to our calculations, this imbalance has already been rectified and reflected in the lari’s exchange rate. As for processes we’ve been seeing lately, they have largely been caused by the hysteria of market participants. Despite the fact that price fluctuation will affect several commodity groups, we do not expect more pressure from inflation than we plan on.
There are two reasons for this. The first one is that prices of commodity groups such as oil, wheat, sugar and so on are dropping worldwide. The second one is that unlike last year, the monetary stock was not increased. Moreover, after consulting with the government it was decided that there will be no deficit spending in December. This will relieve the pressure of inflation even further.”

Spend Away, Nodari!

geotv.geThere indeed is a precedent of intensive spending of the budget in play, since governmental departments failed to fulfill even half of their spending budget in 10 months. For example, the Economy Ministry’s expenses in this time period comprised 40.4 million GEL, while an additional 48.45 million GEL allotted to it by the budget remained unused. The Ministry of Regional Development and Infrastructure is also behind when it comes to spending: Out of the 916.5 million GEL planned for this year’s budget, only 630.8 million were spent in 10 months, leaving 285.6 million yet to be spent in November and December.
In 10 months, only 13.1 million GEL out of the planned 46.9 million were spent by the Ministry of Internally Displaced Persons, Accommodation and Refugees. As for external debt, only 54 percent of it was fulfilled so far, which means that out of the planned 1.036 billion GEL, only 0.565 billion was used. Long term investments spending is at 50 percent, with only half of the 600 million GEL allotted for it received. Despite all this, according to the Ministry of Finance, nothing threatens meeting of 2014 budget plan or its spending department. The National Bank assures us that there will be no deficit spending in December, following the government’s consultation. The choice is difficult indeed: the government should come to terms either with an unachievable budget or with this devalued currency.

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