Mikheil Saakashvili: “When I became president, the GDP per capita was USD 980 and when I finished my presidency, the GDP per capita was USD 4,000. Under Ivanishvili’s [Georgian Dream in power] rule, the economy increased by 0% in USD. We had a fourfold economic growth and he had a 0% economic growth.”
Verdict: FactCheck concludes that Mikheil Saakashvili’s statement is a MANIPULATION OF FACTS.
Resume: The real GDP in a national currency is a widely used objective measurement in order to assess the economic growth trend of a separate country which takes the inflation effect into account and ensures the accurate understanding of a country’s economic growth. Naturally, this indicator is used by all local and international authoritative organisations to assess the GDP dynamic.
The claim that there was a zero economic growth in 2012-2019 is false. There was not a single year in the period of 2012-2019 when the real GDP per capita decreased in the country and the economy was still growing, albeit at a comparably slower rate. In 2003-2012, the real GDP per capita increased by 81%; that is, by 1.81 times instead of a fourfold growth as claimed by the former President of Georgia. It was only the nominal GDP per capita (USD) which increased fourfold from USD 1,009 to USD 4,249. However, it is wrong to use this indicator to assess the economic situation in different periods of time.
Mikheil Saakashvili’s statement contains data which are factually accurate, although the real picture of economic development is distorted as a result of a wrong or deliberately misleading interpretation of the data. Therefore, Mikheil Saakashvili’s statement is a manipulation of facts.
Analysis
The former President of Georgia, Mikheil Saakashvili, on air on TV Pirveli stated: “When I became president, the GDP per capita was USD 980 and when I finished my presidency, the GDP per capita was USD 4,000. Under Ivanishvili’s [Georgian Dream in power] rule, the economy increased by 0% in USD. We had a fourfold economic growth and he had a 0% economic growth.”
The gross domestic product (GDP) shows the volume of goods and services produced for a certain period of time within a country for final consumption and serves as a measurement of the size and the scale of a country’s economy. The GDP volume can be defined by various indicators (nominal GDP, real GDP, GDP converted in foreign currency, etc.) although they are not universally capable of describing trends.
The real GDP in a national currency is a widely used objective measurement in order to assess the economic growth trend of a separate country which takes the inflation effect into account and ensures the accurate understanding of a country’s economic growth. Naturally, all local and international authoritative organisations use this indicator to assess the GDP dynamic. More importantly, selecting an irrelevant measurement can be misleading. For instance, the nominal GDP is not free from inflationary processes and it is wrong to use it for analysis over time (a comparison of data of different years). It is even more incorrect to use the nominal GDP converted into USD which also contains the exchange rate fluctuation effect apart from inflation and distorts the real trend. Mikheil Saakashvili uses this particular indicator which shows the most erroneous picture of all of the available alternatives.
Table 1: GDP Per Capita in 2012-2019 (Real GDP is given in 2015 prices).
Source: National Statistics Office of Georgia
In 2012-2019, the real GDP per capita (in 2015 prices) increased by 32.7% from GEL 8,100 to GEL 10,800. At the same time, the nominal GDP per capita in USD increased by 6.2% from USD 4,422 to USD 4,696 whilst the real GDP in USD per capita decreased by 22.3%. However, as mentioned earlier, it is inappropriate to use the aforementioned indicators to assess the economic growth dynamic. Certainly, the depreciation of the national currency exchange rate entails a number of negative consequences. This includes a higher debt service burden for those with income in GEL and obligations in a foreign currency, more expensive import, foreign travel, etc. However, in spite of this, it is still wrong to convert people’s incomes into USD since GEL is the legal tender in Georgia and people’s expenses are mostly denominated in GEL. On top of that, the inflation indicator itself includes the effect of the currency’s depreciation on the purchasing power and this effect is properly taken into account when using the real GDP in GEL. Therefore, it is incorrect to argue that the economic growth rate under the Georgian Dream’s rule is zero (see Graph 1). In fact, there was not a single year in the period of 2012-2019 when the real GDP capita decreased in the country [1] and the economy was still growing, albeit at a comparably slower rate. Therefore, criticism should target the declining GDP growth rate instead of the decrease in the GDP.
Graph 1: Real GDP Change Dynamic in 2012-2019 (GEL Million, Real Growth %)
Source: National Statistics Office of Georgia
The fact that the National Statistics Office of Georgia published new GDP indicators as a result of the introduction of the updated methodology of the System of National Accounts (SNA), which stipulated the growth of Georgia’s GDP, warrants additional clarification. Georgia’s economic growth was different in different years. GDP figures since 2010 have been subjected to updates. Therefore, figures calculated based on the old methodology were used for a comparison of 2003-2012 and are a valid source for measuring the GDP dynamic (see FactCheck’s article).
According to the 1993 SNA methodology, the real GDP per capita – the real economy in the national currency - increased by 81% in 2003-2012; that is, 1.81 times instead of the fourfold growth as claimed by the former President of Georgia. It was only the nominal GDP per capita in USD which increased fourfold (by 300%) and using this indicator for the assessment of the economic situation in different periods of time is wrong since it is not free from inflation and the currency exchange fluctuation effect on the GDP figure. Therefore, Mr Saakashvili manipulatively used this indicator to assess economic changes over time.
Table 2: GDP Per Capita in 2003-2012 (Real GDP is given in 2010 prices).
Source: National Statistics Office of Georgia
To highlight the speculative nature of using a USD-converted GDP for analysis, some examples can be provided. For instance, in Norway as a result of the depreciation of the local NOK vis-à-vis USD in 2015, the country’s USD-denominated nominal GDP per capita shrank by USD 23,000 and dropped to USD 74,000 when it was USD 97,000 in 2014. In fact, the real volume of Norway’s economy has not decreased and picking a wrong indicator is misleading. A similar drop in the GDP also happened in a number of other countries because USD appreciated across the globe in the second half of 2014.
Graph 2: Fluctuation of GDP Aggregates Vis-à-vis the Real (2015 Prices) GDP (GEL Million, USD Million)
Source: National Statistics Office of Georgia
Graph 2 shows the fluctuation dynamic of different indicators in the case of Georgia. Given the fluctuation of price levels and the currency exchange rate, the gap between the indicators has been substantial over the years. Therefore, depending on different goals, picking one of these indicators in analysing the GDP leaves room for manipulation. However, as mentioned earlier, the real GDP shown in the unbroken red curve provides the most accurate description of the GDP dynamic.
[1]Under the ongoing pandemic, 2020 will be the first year after 2009 when Georgia’s GDP will indeed decrease.
