The current account deficit of the tax balance decreased to 8.7% which is very important for the GEL exchange rate
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Verdict: Giorgi Kvirikashvili’s statement is TRUE.

 

Summary: A country’s negative current account balance means that more currency leaves the country than enters it and is something which negatively affects the economy. It causes pressure on the exchange rate and creates the need for covering the deficit with a financial account (investment, borrowing or decreasing currency reserves). A high current account deficit increases the risk of crediting the economy which, in turn, is reflected in a decreased access to credit resources and/or an increased interest rate.

As of 2017, the current account deficit decreased by USD 531 million and equalled USD 1,316 million. The share of the deficit constituted 8.7% of the GDP in 2017 and was one of the lowest indicators in the last decade and is surpassed only by 2013’s indicator of 5.9%. In 2016 this indicator was 12.8%.

Georgia’s negative trade balance has remained as the main factor behind the formation of the current account deficit. This is partly balanced by the trade in services and increases in profit from tourism.

 

Analysis

The Prime Minister of Georgia, Giorgi Kvirikashvili, stated during a government meeting: “It is important that the current account deficit reached one of the lowest indicators in 2017, falling from nearly 13% to 8.7% and manifesting a USD 531 million decrease. This is very important for the stability of the currency exchange rate and represents one of the positive indicators.”

FactCheck took interest in the accuracy of the statement.

A country’s balance of payments includes comprehensive information about monetary inflows and outflows. The balance of payments is a sort of account that reflects the money transfer between the economy of a specific country and the rest of the world. The balance consists of the current, capital and financial accounts.

current account includes the component of trading with goods and services as well as incomes and transfers. The income component shows inflows of income from abroad (specifically, labour remuneration and investment income) and incomes transferred from abroad. Transfers include current transfers between the residents and non-residents of a country (for instance grants, financial assistance).

A capital account consists of purchase/assignations of capital transfers and non-produced non-financial assets. One of the forms of capital transfers is the forgiveness of debt.

A financial account includes direct investments, portfolio investments, financial derivatives, other investments and reserve assets.

If a country’s current account is deficit; that is, if more money leaves the country as compared to what comes in, the gap is covered by investments, taking debt and a decrease in monetary reserves.

Table 1 reflects the tendencies of change in the current account deficit. As of 2017, (excel) the current account deficit decreased by USD 531 million as compared to the previous period and equalled USD 1,316 million. The share of the deficit in the GDP in 2017 constituted 8.7% and is one of the lowest indicators in the recent decade and only falls behind the indicator for 2013 (5.9%).

 

Table 1: Tendencies of Change in Georgia’s Current Account

2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP (GEL) 17,986 20,743 24,344 26,167 26,847 29,150 31,756 34,028 38,042
GDP (USD) 10,767 11,639 14,435 15,846 16,140 16,509 13,994 14,378 15,189
Current Account Deficit (USD) -1,136 -1,196 -1,844 -1,886 -958 -1,790 -1,696 -1,847 -1,316
Difference Compared to the Previous Period (USD) 1,678 -59 -648 -43 928 -832 94 -152 531
Share of GDP 10.6% 10.3% 12.8% 11.9% 5.9% 10.8% 12.1% 12.8% 8.7%

Source: National Bank of Georgia

 

Whilst discussing the tendencies of the deficit’s formation, it should be mentioned that the trade of goods remained the main causal factor behind the negative balance. The balance of the trade of goods decreased insignificantly (0.74%) as compared to the analogous indicator in 2016 and equalled USD 3,840 million. The deficit is partly balanced by the positive balance of the trade in services (USD 2,069 million) mostly due to the profit received from tourism (USD 2,288 million).

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