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Income per capita in 2021 is expected to increase to USD 4,353, which is 7.3% less than the 2019 indicator – TI

28.12.20 11:15

Transparency International Georgia has published a new review of the third draft of the 2021 budget. According to the report, the Georgian economy will contract by 5% in 2020 and will grow by 4.3% in 2021. The initial version of the draft budget estimated a 5% growth for next year. TI Georgia then recommended that, given the real situation, the budget projections be made based on a lower indicator of economic growth.

In 2021, the state budget receipts will amount to GEL 16.8bn, which is GEL 1.7bn less than the budget receipts in 2020. The decrease is conditioned by the fact that the government is borrowing GEL 8bn in 2020, while in 2021, it plans to borrow GEL 5.3bn.

Income tax reliefs will continue until May. Individuals whose salary does not exceed GEL 1,500 will not pay tax on GEL 750.

The budget expenditures will increase by GEL 2.5bn and amount to GEL 18.4bn; this includes an increase in expenses by GEL 222m. Repayment of the debt in the amount of GEL 2.8bn accounts for the largest portion of increase in expenditures.

Administrative expenses will increase by GEL 221m, amounting to about GEL 3.3bn in total. An increase in these expenses is caused by spending GEL 60m more on remuneration and GEL 151m more on the procurement of goods and services. Compared to 2019, administrative expenses are increased by GEL 520m.

The total number of employees in budgetary organisations will increase by 356 people and reach 112,570. Of these, 227 persons will be added to the management of the healthcare programme and 176 – to the labour and employment system reform programme. The number of policemen will increase by 82 and the number of employees of the Parliamentary Staff will increase by 50 people.

Four ministries will have their budgets increased the most: Ministry of Regional Development and Infrastructure – by GEL 551m; Ministry of Education, Science, Culture and Sport – by GEL 264m; Ministry of Defence – by GEL 95m; and Ministry of Internal Affairs – by GEL 30m.

From 1 January 2021, the pension of the pensioners aged under 70 will increase by GEL 20 and amount to GEL 240, while for those aged 70 or older, the pension will increase by GEL 25 and amount to 275. The increase in pensions will cause the budget expenses to increase by GEL 370m.

An allocation of GEL 400m is made for the management of coronavirus-related diseases, which includes expenses for treating the infected patients, tests, vaccine procurement and expenses related to the prevention of the spread of the pandemic.

Due to the deterioration of the situation caused by the coronavirus pandemic, GEL 310m is allocated for assistance to the population. For six months, individuals who have lost their jobs will receive assistance in the amount of GEL 200. For six months, socially vulnerable families, children with disabilities and persons with pronounced disabilities will receive additional GEL 100 per month. Also, families with three or more children aged under 16 years will receive GEL 100 per month for six months. In January and February, utility expenses will be covered according to this year’s model.

Only the Ministry of Economy will experience a significant budget cut of GEL 353m. The reason for the cut is the reduction of the allocation for the loan and guarantee facility by GEL 280m and the completion and annulment of the programme of support for small, medium and family-run hotels for which GEL 70m was allocated this year.

The financing of the universal health coverage programme is reduced by GEL 2m with GEL 800m allocated to this end, while GEL 882m from the universal health coverage programme has already been spent this year and it is likely that more than GEL 900m will be spent by the end of the year.

The budget deficit will be GEL 4.1bn (7.7% of GDP), of which GEL 2.5bn will be covered by taking a new loan and GEL 1.6bn – by using the budget remainder.

In 2021, the government will take a loan amounting to the total of GEL 5.3bn but, at the same time, will use GEL 2.8bn to repay previous loan. In 2021, the government will not be taking a new domestic loan. Next year, in order to repay “Euro-obligations” worth USD 500m issued in 2008, the government is going to issue new “Euro-obligations” worth GEL 1,657m. According to the previous version of the 2021 draft budget, the government was not planning to issue new “Euro-obligations”, intending to repay this debt using the budget remainder.

Towards the end of 2021, the public debt will amount to GEL 32.1bn which will constitute 60.1% of the projected GDP. The amount of debt will thus exceed the 60% threshold which is considered to be critical.

The expected outcomes and indicators of the programmes envisaged by the budget are, once again, provided as an annex and are not included in the text of the law on the budget, which indicates an incorrect approach to programme budgeting.

According to the final draft 2021 State Budget of Georgia, the government estimates that the economy will contract by 5% in 2020. Since the average rate of contraction of the economy in January-October was 5.1% and, at the same time, the contraction indicator in October fell to 3.9%, despite the restrictions that were imposed on 28 November, the estimated 5% annual contraction is a realistic one.

The government estimates a 4.3% economic growth for 2021. According to the previous version of the draft budget, the government estimated a 5% growth but reduced this indicator due to the deterioration of the pandemic-related situation. In general, it is easier to achieve economic growth after a crisis year since the economy is returning to its pre-crisis state. However, it is clear that the pandemic will remain a problem at least in the beginning of next year and the Georgian economy will shrink in January-February 2021. The economy will likely start growing in March next year.

The tentative Georgian Lari to US Dollar exchange rate used for 2021 is 3.3. Income per capita in 2021 is expected to increase to USD 4,353, which is 7.3% less than the 2019 indicator. The expected annual inflation rate is 3%.

However, On 30 November, the Government of Georgia (GoG) submitted to the Parliament the final version of the draft law On the 2021 State Budget which differs considerably from the version submitted on 5 November. The significant changes in the draft budget were caused by including in the budget the factors related to the coronavirus pandemic.
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