On 17 September 2014, during his speech at the Parliamentary session, Zurab Japaridze talked about the economic conditions of the country. He underlined the fact that the planned amount of the GDP is GEL 3 billion less than it was according to 2013 forecasts. The MP also elaborated upon the reduction of foreign currency reserves and the growing amount of the public debt.FactCheck
took interest in the economic processes in the country and verified the accuracy of the given statement.
According to the Ministry of Finance of Georgia, the 2013 forecast set the 2014 nominal GDP of Georgia at GEL 32.4 billion which corresponds to the numbers stated by the MP. The forecast changed in 2014 and reduced to GEL 29.4 billion. Hence, the difference is, indeed, GEL 3 billion.As for the foreign currency reserves, according to the National Bank of Georgia, they have been reducing since October 2013. FactCheck wrote
about this issue earlier in the year as well. The reduction of currency reserves from November 2013 to February 2014 was due to the depreciation of the national currency. Georgia has a floating exchange rate to foreign currencies. Thus, the exchange rate of the GEL is determined by demand and supply and the National Bank does not intervene in this. However, in the case of sharp changes in the exchange rates of the GEL, the National Bank is authorised to resort to exchange rate stabilising operations which it did last year – in order to stabilise the exchange rate of the GEL, the National Bank sold USD 440 million in reserves on a foreign exchange auction.
In total, the foreign currency reserves reduced by USD 545 million from November 2013 to February 2014. The trend continued until July 2014, causing a total reduction of USD 611 million. However, the foreign currency reserves increased by USD 213 million in August 2014 and amounted to USD 2,489. In total, the foreign currency reserves reduced by USD 400 million from October 2013 to September 2014.
Foreign Currency Reserves of 2013 and 2014Source:
National Bank of Georgia
International reserves, 92% of which consists of currency reserves, are one of the indicators of the economic stability of a country. Hence, keeping the reserves at an adequate level is very important. It should be noted that according to the recommendations of international credit organisations, the amount of international reserves should be able to cover the expenses of three months of import in order to ensure the currency safety of the country. The average monthly import of Georgia in 2014 equalled GEL 688 million. The international reserves amounted to USD 2,489 at the end of August 2014. Hence, the ratio of reserves to import was 3.6 which means that the reserves are 3.6 times more than the monthly import of the country. Chart 2 shows that the ratio of reserves to import is lower than that of the previous year and has a trend of reduction by August 2014.Chart 2:
Reserve to Import Ratio of 2013 and 2014Source:
National Bank of Georgia, National Statistics Office of Georgia
As for the planned loan, the 2014 forecast of the loan set its amount at GEL 1,631 million. FactCheck also wrote
about this topic earlier in the year. It should be noted that the 2014 annual budget allocates GEL 598 million for servicing the debts of the previous years. Thus, the net increase of the public debt (increase - decrease) amounts to GEL 1,038 million. According to the Budget Implementation Report, the increase of the public debt happens mainly by increasing the domestic debt. As for the external debt (mainly used for the implementation of targeted investment projects) its actual increase is significantly lower than initially planned. Specifically, according to the Budget Implementation Report of the first six months, the growth of the external debt is GEL 147 million instead of GEL 276 million as planned, constituting 53.2% of the six-month plan. According to the data of the first eight months, the growth of the external debt amounted to GEL 247 million as opposed to the initial plan of GEL 629 million, constituting 39.3% of the nine-month plan. According to the Budget Implementation Report of the first six months, the plan for servicing the public debts of the previous years was implemented by 96.8% (GEL 281 million). As the public debt of the country is being serviced successfully and the growth of the debt is lower than expected, we can assume that the growth of the public debt will be lower than the planned amount of GEL 1,038 million at the end of the year as well.
The economic growth forecast of the beginning of 2014 did indeed change as compared to the similar forecast of 2013. Specifically, the forecast amount of the GDP reduced from GEL 32,450 million to GEL 29,352 million which means that it reduced by GEL 3 billion as stated by the MP.As for the external debt and the condition of the international reserves, FactCheck
has already published articles about these issues and according to them this part of Mr Japaridze’s statement is also true. The foreign currency reserves reduced by USD 545 million in the period mentioned by the MP whilst the planned amount of debt for 2014 – GEL 1,631 million is not being fully implemented.FactCheck concludes that Zurab Japaridze’s statement: “According to the 2013 economic forecast of the Ministry of Finance of Georgia, the economy should have reached GEL 32 billion in 2014. According to the current forecast, we will be losing GEL 3 billion. We have lost more than USD half a billion in currency reserves from the end of 2013 to the beginning of 2014. You have planned a GEL 1,631 million loan which you are not able to implement,” is TRUE.