Analysis of Medium Term Fiscal Policy Sustainability in Georgia

Project Description:

Objective
Assess the fiscal sustainability of the country in the medium- and long-term. Decrease in the economic growth rate, an increase in fiscal deficits, and public debt in Georgia raised concerns about the sustainability of the country’s fiscal policy. The analysis reviewed the significant aspects of the fiscal policy’s sustainability.

Results
The findings showed a need for the adjustment of the fiscal policy over the medium term. PMC Research recommended making public debt more transparent and consolidated, and to direct economic policy towards a higher growth rate, resulting in lower fiscal pressure on monetary parameters.

For the maintenance of a stable economy, the government should:

1. Carry out economic growth-oriented economic policy to ensure a minimum of 6% growth rate for at least a 4-year period and ensure budget deficit below 2% of the GDP
2. Concentrate on export oriented economic growth to maintain the VAT revenue growth rate below the economic growth rate
3. Increase public investment instead of social expenditures
4. Consolidate and analyze public sector debt statistics. This means that the statistics should cover liabilities of the general government, national bank, LEPL, state funds and public financial and non-financial corporations
5. Implement quarterly plans of the budget expenditures more precisely, distributing the whole budget deficit burden in only a few months should be avoided as it will result in monetary pressure on the exchange rate and price level parameters

The findings showed that the fiscal sustainability of Georgia was currently below the medium level of risk, meaning that the main marginal parameters of the government’s base scenario were satisfactory. However, the indicators of alternative scenarios exceeded the marginal values.

The current main problem of fiscal policy sustainability was the asymmetric distribution of the deficit of the annual budget within the year. The tendency in 2013 and at the beginning of 2014 was that the total deficit of the year was allocated during the last months of the year, which causes monetary pressure on exchange rates and price levels.

Contact
Ms. Irina Lashkhi

Deputy Chief of Party
East-West Management Institute EWMI-GPAC
E-mail: [email protected]