NBG publishes conclusion on 2020 draft budget

By Natalia Kochiashvili

Friday, June 19

In 2020, the Georgian government plans to get a record GEL7.2 billion in foreign debt. For comparison, in 2019, Georgia took on a new foreign debt of GEL1.386 billion.

The government submitted a draft amendment to the 2020 budget to parliament on the 5th of June.

The National Bank of Georgia (NBG) has published its assessment of the adjustment of the 2020 budget. According to the document, the new debts, which the Georgian government plans to borrow, will not pose a risk to the country's financial stability and the debt will be maintained at a sustainable level.

According to the draft law submitted to the Parliament of Georgia, the state budget revenues will be set at GEL10.303 million, of which GEL8.979 million will be on tax revenues and GEL1.323 million will be on non-tax revenues. State budget tax revenues are down 7.1% compared to the 2019 same index.

According to the submitted project, the state budget expenditures amount to GEL14,811 million, of which GEL11,586 million for current expenditures and GEL3,225 million for capital expenditures and net loans. State budget expenditures increase by GEL2,449 million compared to 2019. The increase affected current expenditures (GEL2,515 million), while capital expenditures and net lending decreased by GEL66 million.

The combined budget deficit is projected at 8.5% of GDP in 2020, compared to 2.0% in 2019. NBG says that against the background of a significant reduction in economic activity as a result of the pandemic, a temporary increase in the budget deficit is justified, on the one hand, to finance health and increased social needs and, on the other hand, to support the economic recovery process. At the same time, it should be kept in mind that the increase in the budget deficit should not occur to the extent that it creates the risks of additional pressure on inflation and threatens macroeconomic stability.

According to the NBG assessment, the draft budget is balanced - on the one hand, it responds to the task of supporting the reduced joint demand, on the other hand, this increase in the consolidated budget deficit is temporary, this option is gradually declining in the coming years and will return to a stable level (3%) by 2023. As a result, the high deficit of the 2020 budget, given the fiscal consolidation in subsequent years, does not pose a risk of inflationary pressures, National Bank states. “In addition, it should be noted that the main part of the increased deficit will be financed by additional financial resources mobilized from international donor organizations,” reads the document.

As a result, international reserves will increase, allowing the NBG to carry out foreign exchange interventions as needed and thus avoid potential additional pressure on the exchange rate and inflation resulting from the increased budget deficit.

The main source of funding for the budget deficit is the increase in liabilities. The project envisages the mobilization of GEL1,850 million through the issuance of government securities, which is GEL901 million more than last year. Foreign liabilities increase by GEL5,199 million. As a result, the government debt to GDP ratio increases by 13.2 percentage points in 2020 to 54.4%. Despite rapid growth, government debt to GDP is still below 60%.

“Assuming that GDP growth will average 5% in the coming years and the budget deficit will fall below 3% in the medium term, this increase in debt does not pose a risk of debt sustainability in the medium term,” the National Bank said in a statement.