Bureaucratic Costs of the 2022 Draft Budget - IDFI releases analysis

By Natalia Kochiashvili

Wednesday, October 27

“Due to the coronavirus pandemic the Georgian economy shrank by 6.2%, which is the largest decline since 1994. However, the ministry of finance predicts the economy to grow by 9.5% in 2021 and by 6% in 2022,” IDFI said.

IDFI notes that the state budget shortage for 2022 is expected to be 4.3%, which exceeds the 3% shortage margin defined by the Economic Freedom Act.

The non-governmental organization Institute for Development of Freedom of Information (IDFI) has published an overview of the bureaucratic expenditures of the 2022 budget. The document states that in the draft state budget number of employees is set at 112,712, in fact this figure does not include the staff lists of a number of LEPLs and A (A) IPs, and in reality, the number of employees in the public sector is up to 300,000.

The draft budget envisages 1.65 billion for the salaries of 112,712 employees, which is GEL17.1 million more than in 2021.

The analysis of administrative expenditures envisaged in the draft budget for 2022 shows that no significant changes are planned in terms of bureaucratic expenditures in 2022. Expected expenditures on goods and services are reduced by GEL255 million, which is mostly related to the reduction of pandemic control costs (quarantine services, etc.) and has little to do with the optimization of classical bureaucratic costs.

According to the institutions managing the state budget allocations, the reduction of labor costs is planned in only 5 agencies. The biggest decrease (GEL -21.1 million) is envisaged in the Central Election Commission of Georgia, which is due to the fact that 2022 is not an election year. The largest increase is planned for the Ministry of Defense of Georgia in 2022, where according to the draft budget for 2022, the sums allocated for salaries will increase by GEL6.2 million annually, as well as labor costs will increase by GEL5.8 million for the Ministry of Internal Affairs.

At the same time, it is noteworthy that despite the annual increase in labor costs, ensuring a fair and competitive remuneration system for civil servants remains a significant problem. IDFI believes that the main determinant of this is the existence of a non-optimal bureaucratic apparatus, without which it is impossible to bring bureaucratic expenditures in line with the economic challenges in the country, and, on the other hand, to maintain a competitive public service.

According to Giorgi Kakauridze, the Deputy Minister of Finance of Georgia, “the public sector has lost competitiveness with the private sector and salaries have been frozen for almost the last 5 years, as a result of which qualified personnel are trying to move from the public sector to the private sector.” The Ministry of Finance intends to take certain steps in this direction to increase wages in the public sector.

As a result, in the norms regulating the draft state budget for 2020, there was a record according to which, from January 1, 2024, in order to implement the annual salary remuneration mechanism, the Government of Georgia was instructed to approve the principles for developing the remuneration mechanism and the principles. This will be based on the amount of the average monthly nominal salary officially published by the National Statistics Office of Georgia.

In addition to remuneration, other administrative expenses are reflected in the state budget in the amount provided for in the article "Goods and Services". This article, in addition to the classic bureaucratic costs (remuneration of part-time employees, business trip expenses, representation costs, vehicle maintenance / renewal costs, etc.), also includes various costs related to the coronavirus pandemic (quarantine space services, medical costs, etc.). Consequently, due to the restrictions imposed by the Coronavirus pandemic situation in 2020, business trip, representation and other similar administrative costs naturally decreased, however, on the other hand, various additional costs of servicing quarantine-related quarantine areas and health care increased.

For example, in 2020, when the pandemic caused the greatest damage to the country, expenditures on goods and services increased by GEL227 million. The main drivers of growth were the increase in medical expenses, other goods and services and the remuneration of part-time workers. Also, as expected, due to the impact of the pandemic, business trip and representation expenses decreased (-35.9 million), as well as a significant decrease in the costs of transport, equipment and weapons operation and maintenance (-32.7 million).

According to the draft budget for 2022, GEL1.54 billion is allocated for goods and services, which is GEL255 million less than the amount allocated for the 2021 budget plan.

A significant reason for the decrease is the reduction of costs related to pandemic management, by 2022 the funds for the implementation of quarantine and other measures related to coronavirus are no longer allocated, in 2021 GEL21 million was allocated in this direction. Also, the budget for COVID-19 virus management in the field of health is GEL500 million, which is GEL310 million less than the 2021 plan. Given these circumstances, the 2022 reduction in expenditure on goods and services under the pandemic is related to the reduction in pandemic costs and is less related to the reduction of bureaucratic costs such as pay for part-time employees, business trip and representation costs, fleet upgrade storage costs and more.

The 2022 state budget draft, which was introduced on October 1, reduces the budget by GEL1 bln., which, according to the Georgian Dream government, is owing to the reduction of pandemic management costs.