Georgia might further increase its foreign loan liabilities

The newspaper Bankebi da Finansebi reports that negotiations are underway with the IMF concerning Georgia acquiring a new loan of USD 1.5 billion, with favourable terms attached. The Ministry of Finance claims this amount will be used to cover budget liabilities.

It should be noted that Georgia’s existing foreign debt is close to USD 3 billion. Independent analysts consider such a repayment liability rather dangerous in the country. Irakli Lakvinadze says that foreign loans currently account for 26% of GDP, and if Georgia receives this extra 1.5 billion and USD 300 million from the Asian Development Bank, another loan being discussed, foreign debt will equal 42% of GDP, a very alarming figure.

The situation appears even more dramatic when we realise that most of this loan income is spent in non-profit making spheres. It is not being used to develop industry, agriculture or entrepreneurial activity but importing products from elsewhere. Around 60-70% of this amount will be spent in this way. “With this loan our country will be financing the economies of Turkey, Azerbaijan, Ukraine and other countries, as they are the biggest trading partners of Georgia,” thinks Lekvinadze.

Independent analyst Demur Giorkhelidze has expressed his curiosity about how the country can pay back such huge loans when there are no major changes in the Georgian economy. Economist Gia Gaganidze suggests that it is doubtful that the IMF will issue such a huge loan at all. Levan Kalandadze thinks that it would be better to reduce budgetary expenditure rather than take on extra foreign loans.

It is expected that we will know pretty soon whether the new loan will be issued and how much it will be.