Irakli Garibashvili, Prime Minister of Georgia held a Working Meeting with Lasha Khutsishvili, Minister of Finance and Deputy Ministers of Finance today. The focus was made on the plans and major directions to be pursued by the Ministry of Finance of Georgia in 2023.
The discussion touched upon the implementation of the Nation-Wide Development Strategy and Vision for 2030.
Minister and Deputy Ministers of Finance briefed the Prime Minister of Georgia on macroeconomic and fiscal parameters for 2023.
It was noted that after the 10.5% economic growth witnessed in 2021, a double-digit indicator was observed in 2022 as well at 10.1%.
As commonly known, economic growth and GDP Deflator projections for 2023 are 5%, while the Nominal Gross Domestic Product (GDP) is almost 80 BLN GEL.
Economic growth indicator will be maintained at 5% average in the coming years, while the GDP Deflator is projected to be 3%. Thus, Nominal GDP projects at 79.7 BLN GEL for 2026 will increase to 101.2 BLN GEL. As for the GDP Per Capita, it is projected to be 8000 USD by 2023, while exceeding 10 000 USD by 2026.
It is worth noting that according to the assumptions made by the International Monetary Fund (IMF), Georgia will have one of the highest economic growth rates among its regional peers and European nations at 5.8% in 2022-2027.
Performance of the 3-year program supported by the IMF was also reviewed at the Working Meeting. It is inter alia aimed at promoting the implementation of the following reforms in the country:
– Reform of the State-Owned Enterprises (SOE);
– Reform of the Public Investment Management;
– Tax Expenditure Assessment and Optimization.
As noted at the meeting, SOE Reform is the most important and largest fiscal endeavors. Reform Strategy has been approved already and relevant legislative amendments are being drafted. In parallel, reform is actively piloted at some SOEs. Apart from the Georgian State Electrosystem (GSE), following enterprises have been selected for the pilot initiative:
– Georgian Railways;
– Gas Transportation Company;
– Airport Amalgamation.
Progress made by Georgia towards international credit ratings has also been discussed at the meeting. As commonly known, FitchRatings has most recently upgraded the Sovereign Credit Outlook from Stable to Positive, affirming BB. Decisive role in the upgraded rating was played by the macroeconomic policies pursued by the country in the post-pandemic period, which led to the following outcome by the end of 2022:
– Reduced public debt;
– Reduced fiscal deficit;
– Replenished international reserves.
It is worth noting that Georgia improved the Debt to GDP ratio in 2022 in comparison with a pre-pandemic 2019. Debt to GDP ratio in 2022 amounted 39.6%, while being 40.4% in 2019. It all led to the high economic growth and reduction of such external vulnerabilities, such as current account deficit and dollarization.
FitchRatings claims that sustainability of these improving factors will be a pre-condition for improving the rating to BB+.
As during the previous assessment, advantages of the country ratings are believed by FitchRatings to be the following:
– High degree of economic governance;
– Stable, reliable macroeconomic and fiscal policies.
It is important that the declining trend of the current account deficit and dollarization is being maintained in the country, which will help improve the credit ratings of Georgia. It means that FitchRatings expects the scores to improve in the following assessments, leaving only one step ahead to the investment rating.
The Prime Minister of Georgia was briefed about the improvements made towards the public investment management in the country. Within the scope of a Technical Assistance (TA) provided by the International Monetary Fund (IMF) and the World Bank Group (WBG), work is in progress towards updating the methodology for the investment project management, which will specify the criteria for the mandatory preliminary assessment applicable to certain projects.
Another topic discussed at the meeting was the analysis/optimization of tax incentives (tax expenditures). It was noted that a Cost-Benefit Study of large tax incentives is intended to be undertaken from this year with support of the IMF.
Following plans of the Ministry of Finance set for 2023 were also discussed at the meeting with the Prime Minister of Georgia:
– Georgia will be announced as a Host Country of the Annual Meeting of the Asian Development Bank (ADB) for 2024 at an upcoming meeting to be held in Incheon, South Korea on May 2-5, 2023;
– Action Plan will be developed in 2023 for a gradual transition of SOEs classified as public entities to the Single Treasury Account (STA) growing into a full transition from 2026. Public schools will be prepared for the transition to the STA in 2024;
– New, medium-term strategy will be approved for the Public Fund Management (PFM);
– Updated Public Debt Strategy will be approved;
– Work will be continued for the improvement of PFM at municipalities, inter alia involving the principle of fiscal decentralisation;
– Work will be continued for the improvement of consolidated financial statements based on the International Public Sector Accounting Standards (IPSAS).
The Prime Minister of Georgia issued new instructions to the Minister and Deputy Ministers of Finance at the Work Meeting held on Tuesday.
