An interview with the head of the Centre for Economic Policy Research Roman Gotsiridze
Should we expect the budget problems in 2014,especially when a budget shortage is observed due to shortfall in international loans and grants?
It is known that GEL 900 million left by the previous government as a reserve have saved last year’s budget. Without this, the budget would not havebeen executed due to lack of fund-raising of the tax system and revenues from privatization.
This year, it was decided to cover the excess social costs by debts – both internal and external.Budget revenues amount to GEL 9.1 billion, including 1.6 billion of debts, as well as 1 billion of external borrowing, some of which will be spent on targeted programs and investment projects.
The remaining amount is a domestic debt, that is, funds received by the state from commercial banks – we are talking about treasury obligations. Many people do not really understand what it is and perceive the internal debt as something not very dangerous and easy. In fact, this means that the state has borrowed from banks GEL 600 million and this sum, as well as any other, must be returned.
As reported, the Tbilisi City Hall also plans to borrow GEL 30 million. How will this affect business?
This is a direct blow to business, as the state is becoming a major competitor in the lending market. This is not the first time the government issues government bonds – in 2009 they amounted to GEL 270 million, in 2011 – GEL 275 million, in 2014 – already 600 million.
That is, the growth is evident. It’s a double problem – the first is that the debts, both external and internal, have to be returned. The second is that borrowing on the domestic market may increase the interest rates, because the state is becoming a major loan recipient .
A separate problem is how to repay debts, from what sources?
There is only one source of repayment of debts – economic revenues . But the revenue base in the country is still small, especially for debt repayment.
It should also be borne in mind that in addition to GEL 1.6 billion in debts, the government receives foreign grants, uses other income – for example, from privatization. Our budget is drawn up with a very high degree of risk, and costs, including permanent, are growing. There is a saying – “it is very difficult to get into the budget expenditures, but virtually impossible to fall out.” Sooner or later, it will become very difficult to finance fixed costs by debts and grants.
If this approach does not change, when ordinary citizens will feel its implications?
While it is not necessary to talk about the dramatic consequences, as we still have a lot of time until the end of the year. At this stage GEL 4.3 billion of 9.1 billion are spent, another 3.8 billion are to bespent in the remaining 4 months, i.e 1 billion monthly.
In this sense, the situation is better than last year, when the bulk of the expenditure was made in the end of the year, which led to the depreciation of the lari. There will be the pressure on the national currency, but not so significant. Last year, the National Bank had to spend USD 470 million from reserves to hold the exchange rate. Now the risk still exists, but smaller.
Although, undoubtedly, unevenness of costs, their concentration on the small periods of time has the danger of pressure on the national currency.