Georgian Leaders Seek Pain-Free Spending Cuts

Wednesday, 4 December, 2013

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Manana Vardiashvili

IWPR contributor in Georgia

The Georgian government has admitted that this year’s revenues will be lower than expected, but it has promised not to cut social spending to bridge the funding gap.

According to most estimates, government revenues will be about one billion laris (600 million US dollars) short of target by the end of the year. The finance and economy ministers say the shortfall is due to economic growth turning out lower than forecast.

On November 11, the European Bank of Reconstruction and Development revised its growth forecast for Georgia downwards from six to two per cent. It blamed sharply reduced levels of private and public investment, as well as a period of political uncertainty following the October 2012 parliamentary election.

Economy Minister Giorgi Kvirikashvili said the government expected growth of two or 2.5 per cent for the year, cutting the revenues it would earn.

“But that isn’t a tragedy,” he added, in remarks he made to journalists.

Last year’s parliamentary polls brought Bidzina Ivanishvili’s Georgian Dream coalition to power in what was a landslide defeat for President Mikheil Saakashvili’s United National Movement.

Ivanishvili became prime minister, and this year, his ally Giorgi Margvelashvili was elected president.

Despite Georgian Dream’s success at the polls, support for it has slipped, and any budget cuts would cut into its popularity.

Finance Minister Nodar Khaduri accused the former president of creating Georgia’s current economic problems.

“At the start of the year, we were anticipating growth of six per cent, but sadly various matters including political developments, the so-called cohabitation [between Ivanishvili and Saakashvili], and quite seriously the constant interference by the president… have led us to a position where there won’t be six per cent growth this year,” he told parliament on November 13.

The finance minister has avoided saying exactly how big he expects the revenue shortfall to be. But Nino Evgenidze, executive director of the Centre for Economic Policy Studies in Tbilisi, said it was relatively straightforward to predict annual revenues based on figures for January through October.

“If you look at how the budget [target] has been met for these nine months, it could be a billion laris short,” she told IWPR. “If that’s the case, one has to ask how they’re going to cut spending.”

Economists say the question is not whether there is a hole in the budget, but how the government will go about plugging it – by raising taxes, issuing new debt, or enforcing spending cuts in a process known as budget sequestration.

Evgenidze said she doubted the government would save by delaying public-sector pay or pensions.

“The difficulties will come in financing programmes of various kinds. For example, it’s already the case that infrastructure projects have been cut, and this has reduced the workforce,” she said. “There could be a problem with funding healthcare. We can predict that there won’t be enough money for all the government’s programmes. The only thing it will not cut is its social obligations.”

Finance Minister Khaduri is adamant that he will not be cutting expenditure.

“Forget the word sequestration – get rid of it,” he said in his speech to parliament. “We may have problems with some kinds of revenue, but there aren’t going to be problems with spending. There is a budgetary reserve fund of around half a billion lari. There will be no sequestration; there are the resources to meet all budgetary obligations.”

His counterpart at the economy ministry, Kvirikashvili, ruled out taking on any new government debt, and confirmed that infrastructure project funding would be put on hold.

“Implementation of infrastructure projects has been postponed, and the money will be redirected towards fulfilling our social obligations,” he said.

Manana Vardiashvili works for the Liberali magazine in Georgia.