…AS SHADOW HANGS OVER GEORGIAN GOVERNMENT FINANCES.

Publication: Monitor Volume: 7 Issue: 186

Although the Georgian economy will likely record acceptable levels of growth this year, the country’s future economic position continues to be threatened by a troubled fiscal situation. Following a brief period of fiscal optimism early this year, Georgia is once again on the verge of a serious budgetary crisis, and loans from the IMF and World Bank are now endangered.

In the first half of 2001, budget revenues amounted to just 356 million lari (US$171.8 million), far below the planned 417 million (US$201.3 million). Budget revenues through August reached 484.8 million lari, or 84.7 percent of the planned target. The main reason for that shortfall related to customs receipts, which totaled just 145.4 million (US$70.2 million), or 77.2 percent of the target. The existence of several autonomous provinces within Georgia complicates the country’s fiscal situation and limits potential tax and customs revenues.

Given the lower-than-expected budgetary income and privatization revenues, the government will likely have to cut expenditures significantly again this year. The government has insisted that protected parts of the budget will not be affected. Finance Minister Zurab Noghaideli announced plans in early August to reduce budgetary expenditures this year by delaying the repayment of foreign debts and of 40 million lari (US$19.3 million) worth of short-term loans from the National Bank of Georgia (NBG). Such measures would save an estimated 225 million lari (US$108.6 million). Noghaideli said that the government may decide to borrow even more money from the NGB if necessary. NBG officials balked at such plans, stressing that if the bank becomes a main source of government financing, that would lead to looser monetary policy, a weaker currency, and possible hyperinflation. Georgia remains one of the only CIS countries in which the National Bank is not only able but also required to help finance the state budget deficit. Georgian President Eduard Shevardnadze has acknowledged that corruption is the main reason for the country’s budgetary problems, but appears unwilling or unable to do much to change the situation.

In September, the IMF sent the Georgian government a letter giving the country until October 9 to meet twelve demands if it wishes to receive additional financing. Because of the failure to meet planned revenues thus far this year, the IMF is asking for the parliament’s approval of a sequestration of the budget as well as legislation to establish tighter control over customs. Other requirements include the introduction of an electricity surcharge to cover the industry’s debt to foreign creditors as well as the abolishment of a ban on wood exports from Georgia. A suspension of IMF loans to Georgia would likely lead to a halt in lending programs by other international financial organizations and donor countries as well, meaning that the country would face a serious crisis. Given Georgia’s limited access to international funding, it appears that the government will have no choice but to follow the IMF’s directives (National Bank of Georgia; Prime-News news agency, August 2; Russian agencies, September 23).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at [email protected], by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions