Current expenses are decreasing and the decrease in the size of the government is a positive trend and will continue
Half True
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Verdict: Mamuka Bakhtadze’s statement is HALF TRUE.

 

Summary: In 2012-2017, the share of expenses of the consolidated budget of Georgia in the GDP had a downward tendency. In 2016, the indicator reached its highest at 26.8%. Last year, it decreased and equalled 25.4% and will fall as low as 23.5% according to the forecast for 2018. Therefore, Mamuka Bakhtadze’s statement is correct in terms of the decrease in current expenses although his mention of the annual data is incorrect.

The Minister of Finance accentuates the decrease in the size of the government together with the trend of decreasing expenses. In order to evaluate the size of the government, one should use the volume of expenditures in the consolidated budget as this allows for a complete evaluation of what the government is spending. Consolidated budget expenditures comprise spending financial and non-financial assets together with the budget expenses. The size of the government increased between 2013 and 2017. According to the 2018 draft budget, however, the size should decrease by 0.5%. This decrease, in the case of sustaining or improving the budget forecast, will reflect a positive trend.

 

Analysis

On 16 April 2018, the Minister of Finance of Georgia, Mamuka Bakhtadze, stated that the current expenses decreased from 26% in 2016 to 24.6% in 2017 whilst a further decrease to 23.9% is planned in 2018. He also added that the decrease in the size of the government is a positive trend and that it will continue.

According to economic theory, the share of the funds spent by the government in the gross domestic product (GDP) shows the government’s participation in the economy or the size of the government. In the case of the increased size of the government, less space is left for private entrepreneurship which negatively affects the accumulation of wealth in the country in the long-term perspective.

The amount of funds spent or to be spent by the Government of Georgia is presented in the consolidated budget of the country which combines the state and the local budgets.

According to the consolidated budget of Georgia, the budgetary expenses increased in our period of interest (2012-2018). The year 2018, however, will be an exception. A document entitled Main Indicators and Directions of the Country mentions that the expenses of the consolidated budget will decrease in 2018 and equal GEL 9,555 million. It is noteworthy that the forecast amount of the budgetary expenses changes in accordance with the actual completion trends. Therefore, it is likely that this indicator will be corrected at the end of the year, either positively or negatively.

The expenses of the consolidated budget include administrative expenses, the annual interest rate to be paid for domestic and foreign debt, funds allocated for subsidies, grants, main capital consumption and social care (healthcare, pensions) as well as all other expenses combining funds allocated for infrastructural development and education. In order to measure the magnitude of the expenses in the consolidated budget, it is important to look at its share in the GDP. This share, on the one hand, actually shows the tendency of changes within expenses and, on the other hand, reveals the degree to which the government participates in the economy.

The expenses of the consolidated budget did not have a clear tendency in the period of interest. In 2012-2014, it increased from 24.8% to 26.5% whereas it decreased by 0.7% in 2015 but showed a growth tendency in 2016. Last year, it shrunk and equalled 25.4%. According to forecasts, the decreasing trend will continue in 2018. The share of the consolidated budget expenses in the GDP should be equal to 23.5% at the end of the current year.

 

Table 1: Statistics of Expenses of the Consolidated Budget in 2012-2018 (USD million, %)

2012 2013 2014 2015 2016 2017 2018
Expenditures in the Consolidated Budget 8,475 8,659 9,656 10,612 11,494 13,003 13,666
Expenses of the Consolidated Budget 6,495 6,723 7,730 8,180 9,126 9,664 9,555
GDP 26,167 26,847 29,150 31,755 34,028 38,042 40,575
Expenses of the Consolidated Budget (%) 24.8% 25.0% 26.5% 25.8% 26.8% 25.4% 23.5%
Size of the Government (%) 32.4% 32.3% 33.1% 33.4% 33.8% 34.2% 33.7%

Source:  Ministry of Finance of Georgia, Geostat

 

In his statement, Mamuka Bakhtadze considers the expenses of the consolidated budget in connection with the size of the government and speaks about the decreasing trend in expenditures. It should be noted that the size of the government is measured by looking at the share of expenditures to be spent in the consolidated budget in the GDP. The expenses of the consolidated budget represent a significant part of the expenditures budget line but do not fully cover them. The expenditures budget line also comprise the changes in financial and non-financial assets. The changes in financial assets comprise changes in deposits, loans and securities by the government. The non-financial assets comprise the budget’s capital and infrastructural expenses. Therefore, the funds spent within the country by the Government of Georgia are reflected in the expenditures budget line.

The size of the government increased from 2012 to 2017 with 2013 being the only exception when it decreased slightly as compared to 2012 and equalled 32.3%. According to the 2018 plan, the expenditures budget line equals GEL 13,666 million in the consolidated budget which will account for 33.7% of the country’s economy. Therefore, from every GEL 100 spent in the economy GEL 34 will be spent by the government. This indicator lags behind that of 2017 by 0.5% which reflects a positive tendency. It is important that this tendency is sustained and not changed negatively at the end of the period of interest.

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