has to pay more to cover its bank loans.The depreciation of GEL is caused by a high demand and a reduced supply of USD. Beginning from the second half of 2014, the inflow of USD from the basic sources of foreign currency (tourism, remittances, exports) started to decrease and this trend remains unchanged until now. The budget deficit spending at the end of 2014 also contributed to the depreciation of GEL. FactCheck has already written
about this particular issue.
Bidzina Ivanishvili issued a statement regarding the depreciation of GEL and declared that in order to alleviate external shocks, the Government of Georgia decreased the 2014 budget deficit by GEL 300 million.FactCheck
took interest in the accuracy of the statement.According to budget projection, a deficit of GEL 1,038 million was planned for 2014 and which constituted 3.5% of Georgia’s GDP. The budget plan was executed unevenly throughout the year. At the beginning of 2014, infrastructure expenditures were lagging behind schedule whilst budget expenditures accelerated at a very fast pace at the end of the year. The deficit spending of the budget was one of the contributing factors
to the depreciation of GEL.
Georgia’s GDP growth rate also decreased at the end of 2014. Instead of a 5% growth rate as planned, the GDP real growth rate is 4.8% according to the preliminary estimates of the National Statistics Office of Georgia whilst the nominal GDP equals GEL 29,187 million. According to the data of the National Treasury of Georgia, the budget deficit in 2014 was GEL 863 million which constituted 2.9% of the GDP. Therefore, the budget deficit was indeed decreased.It must be noted that the decrease of the budget deficit was not a result of the deliberate actions of the Government of Georgia. The Government of Georgia did not amend the Law on Budget to slash budgetary expenditures as claimed
by the Prime Minister of Georgia. The decrease of the budget deficit was largely caused by an incomplete absorption of expenditures. In addition, the tax incomes part of the budget was fulfilled with a surplus and, consequently, the budget deficit at the end of the year was less than planned which in itself is a positive outcome.Of further note is the uneven execution
of the 2014 budget. In the main, infrastructural expenditure, funded principally by the foreign debt, was in a constant state of lagging behind. At the end of the third quarter of 2014, only half of the foreign debt was transferred owing to incomplete project planning whilst GEL 478 million was transferred at the end of the year.The table below illustrates state expenditures by quarter. It is obvious that spending (especially in the part of investment projects) was uneven throughout the year. FactCheck has already published an article
on this topic.
Quarterly Budget Expenditures
We have to underline that when GEL started to depreciate rapidly in December 2014, the Government of Georgia did not reduce spending. On the contrary, in the last quarter of 2014 budgetary spending started to accelerate. For instance, in the period of January-September 2014, the budget deficit was GEL 274 million which rose to GEL 863 million (by GEL 588 million) in the fourth quarter. Of these amounts, the budget deficit spending in December alone amounted to GEL 288 million which subsequently contributed to the depreciation of the national currency.
Graph 2: Budget Deficit
in January-December 2014
According to the budget projection, a deficit of GEL 1,038 million was planned for 2014 which constituted 3.5% of the GDP. At the end of the year, the actual budget deficit was GEL 863 million which constituted 2.9% of the GDP. Therefore, the budget deficit in 2014 was indeed decreased. However, the statement that the Government of Georgia deliberately decreased the budget deficit is far from the truth. It has not made any corrections to the Law on Budget. The decrease of the budget deficit was caused by an incomplete spending for infrastructural projects and by surplus tax incomes.
Of particular mention is the fact that when GEL started to depreciate rapidly at the end of the year, budget spending rose considerably. The budget deficit increased by GEL 588 million during the last three months of 2014. Of these amounts, the budget deficit rose by GEL 288 million in December alone which in turn contributed to the depreciation of GEL.Therefore, Bidzina Ivanishvili’s statement: In order to alleviate external shocks, the Government of Georgia decreased the 2014 budget deficit, is MOSTLY FALSE.
Change of balance is not foreseen in these statistics.