Georgia’s gross public debt will reach 62% of GDP in 2021 – such was the answer of the Head of the International Monetary Fund (IMF) Middle East and Central Asia Department Mission Mercedes Vera-Martin on the one aspect of the statement released after the Staff had reached the agreement under the 7th review of EFF program.
The statement released by Mercedes Vera-Martin prior to the exclusive interview with The Checkpoints conducted by Elene Kvanchilashvili reads that the public debt should come down to 60% by 2023.
The question The Checkpoints asked was – what happens before 2023 and does the IMF envision for Georgia to step over the 60% threshold required by the law on Economic Freedom?
“Georgia is a small open economy vulnerable to external shock. So when we were assessing the impact of the shock on the Georgian economy, we were expecting a widening in the current account deficit – mainly because the travel has stopped, and Georgia is a tourism dependent economy. You had great social growth in last years and with the social distancing and ban on international flights there was no other way than the tourism coming to a standstill” – Mercedes-Vera-Martin explained.
According to the Head of the Mission of the IMF to Georgia, that is going to have an impact. “I have to say at the same time regarding the current account deficit – Vera-Martin continued – it has been milder than what we originally projected – in part because there has been an adjustment in the trade balance: Import growth had been subdued because of the domestic demand, and that has compensated more than the slowdown we have seen in exports. And remittances have also sustained the levels – actually they have been doing relatively well and they are growing YoY by a single digit, but they are still growing. We didn’t expect that”.
According to Mercedes Vera-Martin, there is a widening in the current account deficit and what the IMF has been looking at is that it has generated additional external financing needs. “In response to that – Head of the IMF Mission to Georgia elaborated further – we augmented the IMF program, we provided more financing, and the authorities have been able to mobilize also donor financing from all their multilateral and bilateral institutions”.
According to Mercedes Vera-Martin, the IMF has the same message for all its member countries that if they have fiscal space it is better to be used “because the shock is so unprecedented that you want to limit the impact in the economy and socially so that when the pandemic fades your recovery becomes quicker” – Vera-Martin said, adding that Georgia has been in this position to mobilize the finance, to have the fiscal space to widen the deficit; however, what she stressed the most is that this cannot be maintained forever.
“There is a Georgian fiscal rule that also tells the authorities – okay, you can deviate from your fiscal parameters on a temporary basis when you are in an emergency situation, and it also tells you how to go back. So, in terms of fiscal sustainability we know that deficit has to be 3% of GDP, debt has to be 60% of GDP by 2023”- Mercedes Vera-Martin added.
According to the Head of the Mission of the IMF to Georgia, the increase in debt is attributed to two main reasons. First is Lari depreciation since the first 3 quarters of the debt issued by bilateral and multilateral institutions in the foreign currency – mostly in dollars and euros, and the depreciation increases the debt level, and second is the financing that the government has mobilized for responding to the shock. “So the public debt will be 62% of GDP in 2021 and it will come below 60% in 2022”- Mercedes Vera-Martin said, adding that one thing to note here is that the increase in the debt doesn’t fully translate in increasing the spending, because the government is also building deposits in case the downside risks materialize.
