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GEL currency Georgian Lari
Photo/ Press office, National Bank of Georgia

GEL vs Government

Economic Team Cannot Be Recognized Successful amid Averaged 3.33% Economic Growth for 4 Years.

Last week Government of Georgia released a special statement regarding the GEL exchange rate. The statement names GEL depreciation reasons and unveils plans for introducing a GEL strengthening action plan.

According to the government’s statement, the national currency floating exchange rate preconditions the following internal and external macroeconomic factors:

  1. Significant devaluation of domestic currencies in neighboring trade partner countries;
  2. Over past months currency outflows enlarged because of imports, while exports failed to balance it because of declination in prices on exports markets.
  3. Creating negative expectations in relation to GEL exchange rate, which, regretfully, is bolstered by speculations from various groups.

Analysis of the government’s statement due to its paragraphs outlines quite unfavorable picture. For example, according to Geostat, national statistics service of Georgia, in January-September 2016 imports made up 5.194 million USD (excluding imports of medications for Hepatitis C) and exports totaled 1.512 million USD. This signifies that trade balance is 3 682 million USD, while the figure was 4 039 million USD in the previous year. This signifies that, due to foreign trade turnover factor, compared to the previous year period, the currency outflow decreased by 357 million USD and this fact comes in collision with the government’s statement.

At the same time, it is abnormal when the country has problems with national currency exchange rate for 2 years and the government seeks reasons abroad to justify currency devaluation by exogenous factors.

It is also worth noting that responsibility for negative expectations is shifted onto various groups. Experts and opposition have also played certain role in creating incorrect expectations, but government officials are, who provoke fault expectations mainly. For example, Deputy Minister of Economy Nikoloz Gagua noted that at the end of 2016 the GEL exchange rate would be around 2.20-2.25 point, but it is unclear  from where he has made such specific conclusions. Regretfully, the government does not promise to stabilize GEL exchange rate (and this is very important), but they say pledge to strengthen the national currency. However, they have promised to strengthen GEL exchange rate many times and all these promises were not justified. Therefore, similar statements have been also devaluated and our society does not trust similar promises any more.

As a result, the Authorities have named those paragraphs for depreciation reasons that had less influence on processes, while kept silent on such important components as unfulfilled plan for serving external liabilities and failure in attracting grants. Anyway, the fact is that this year in January to September period the state budget failed to mobilize about 400 million GEL foreign currency, due to plan, and the currency market of our country suffers from deficiency of this sum. At the same time, Minister of Finances took triple more internal debts than planned and internal debt fulfillment in January to September period made up 310%.

Besides devaluation reasons, Government has also named measures for curbing the current processes. After consultations with International Monetary Fund (IMF),  Government of Georgia and National Bank plan to carry out several complex measures, including:

  1. The 2017 state budget will make focus on economic growth intensification – infrastructural projects portfolio will be expanded. Moreover, administrative costs will be considerably cut and the 2017 budget will be oriented on stable and steady fiscal environment strengthening. Analogical approaches will be maintained towards the next years’ budgets.
  2. In several days a joint action plan will be announced that, jointly with other measures, also implies taking specific steps for consecutive reduction of dollarization”, the government’s statement reads.

It is interesting whether, without GEL exchange rate depreciation, the government would  plan quick economic growth in the budget of the next years?! And whether the economic team of our country had any  other objectives previously. Quick economic development should be a main objective for our country and this is an ordinary thing, nothing special.  Georgian Dream has named quick economic growth as one of the key directions in its pre-election program. As to dedollarization plans, it will not be reduced in 1-2 years and 10-15 year period is required to yield touchable results thanks to correct and consecutive economic policy.

Finally, it should be noted that not everything is fluent in state economy. This was evident previously too. GEL exchange rate turned out in catastrophic condition. Therefore, the time has come that someone take responsibility for economic failure over the past 4 years and file resignation. Economic team cannot be recognized successful with averaged 3.3% economic growth indicator for 4 years on. We hope the new team will be more successful compared to the previous one.

By Merab Janiashvili
Economic Analyst
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