At the beginning of March 2015, the Government of Georgia announced that it would decrease the economic growth forecasts and the state budget due to the on-going currency crisis.
On 24 April 2015, during his visit to GDS’s talk show, 2030,the Minister of Finance of Georgia, Nodar Khaduri, responded to a journalist’s question about whether or not the state budget would be corrected. Mr Khaduri replied that certain changes have already been made to the state budget: "The government has already received a directive and administrative spending has been decreased by GEL 20 million which was moved to infrastructural projects."
The Parliamentary Majority MP, Manana Kobakhidze, also elaborated upon this issue on 28 April 2015 during her visit to Rustavi 2’s talk show, Choice.She stated: "About GEL 20 million, maybe a bit more, of administrative spending has been decreased and this has all been transferred to infrastructural projects. This happened in order to address the challenge which we have with regard to the exchange rate of GEL."
Due to the depreciation of the national currency, in February 2015 the Government of Georgia announced the imposition of rational budget spending and a decrease in administrative spending or, in other words, a policy of tightening belts. FactCheck wroteabout this issue earlier as well.
According to the 6 March 2015 Directive No. 422 of the Government of Georgia, ministries and other spending organisations funded by the state budget were ordered to decrease their administrative spending in order to maintain the country’s fiscal stability and effectively manage the budget deficit. Government structures were to present information about their spending cuts to the Ministry of Finance of Georgia by 16 March 2015. According to the aforementioned Directive, the Ministry of Finance of Georgia was to present the updated fiscal and macroeconomic parameters to the Government of Georgia by 1 April 2015.
According to the information provided by the Ministry of Finance of Georgia, the overall spending cuts for the ministries were set at GEL 20 million after receiving their information and summing the amounts.
| Structure | Decrease (GEL thousand) |
| Ministry of Foreign Affairs of Georgia | - 10,500 |
| Ministry of Finance of Georgia | -2,000 |
| Ministry of Economy and Sustainable Development of Georgia | -2,000 |
| Ministry of Education and Science of Georgia | -1,100 |
| Ministry of Justice of Georgia | -1,000 |
| Ministry of Corrections and Legal Assistance of Georgia | -1,000 |
| Ministry of Agriculture of Georgia | -1,000 |
| Ministry of Regional Development and Infrastructure of Georgia | -500 |
| Ministry of Environment and Natural Resources Protection of Georgia | -500 |
| Ministry of Sport and Youth Affairs of Georgia | -200 |
| Ministry of Culture and Monument Protection of Georgia | -100 |
| Ministry of Energy of Georgia | -100 |
| Overall | -20,000 |
According to the 8 April 2015 Directive No. 706 of the Government of Georgia, the overall amount of GEL 20 million, vacated after cutting the budget spending, was directed to the Regional Projects Fund of Georgia in order to implement future investment projects.
As pointed out earlier, the need to revise the state budget arose after the depreciation of the national currency. The International Monetary Fund Mission also called upon the Government of Georgia to decrease the spending part of the state budget. According to the 22 February 2015 statement made by the Minister of Economy and Sustainable Development of Georgia, Giorgi Kvirikashvili, the Government of Georgia was planning to decrease administrative spending by 12%. The Minister of Finance of Georgia made a statement about decreasing budget spending and the economic growth forecasts from 5% to 2% on 4 March 2015 as well. However, on 1 April 2015, the Minister of Finance of Georgia also stated that the budget of the first quarter of 2015 had been implemented with excess (as a matter of fact, the revenue part of the state budget was implemented by 104.8% in the first quarter of 2015 whilst the spending part by 96.9%) and hence budget spending would not be significantly decreased at the moment. On 23 April 2015, the Minister of Finance stated that the Government of Georgia would probably make a final decision about the budget in two months. On 14 May 2015, the Minister of Economy and Sustainable Development of Georgia, Giorgi Kvirikashvili, firmly stated: "After the adjusted economic growth data of the end of the second quarter are revealed, we will, of course, make appropriate corrections [decrease] to the state budget."
According to the 2015 state budget plan, the overall spending of the budget was set at GEL 8.005 billion. Of this amount, administrative spending (including the remuneration and goods and services articles) amounted to GEL 2.372 billion. If the government had actually decreased its spending by 12% the overall cuts would amount to GEL 280 million which would significantly decrease the budget deficit and positively influence the exchange rate of GEL. However, as we have seen, the budget spending was decreased by only GEL 20 million and this amount was transferred to another article of the budget – infrastructural projects. Overall, the budget spending did not actually decrease. The national currency continues to depreciate to date. According to the most recent data of the National Bank of Georgia, the exchange rate of GEL with regard to USD amounts to 2.36. On 21 February 2015, when the Prime Minister of Georgia announced the new policy of tightening belts, the exchange rate of GEL with regard to USD was 2.18.
Conclusion
Due to the depreciation of the national currency, the Government of Georgia announced its shift to the policy of tightening belts in February 2015. As stated by the representatives of the government, this policy meant a significant (12%) decrease in administrative spending. At the beginning of March, according to the positions of the members of the Cabinet, the budget spending would be cut due to a decrease in the economic growth forecasts (the International Monetary Fund decreased its forecasts from 5% to 2%). Later, the position of the government changed. Satisfied with the implementation of the state budget in the first quarter of 2015, it did not decrease the economic growth forecasts and hence refused to seriously cut budget spending as well.
As of today, the corrections to the state budget and the policy of tightening belts have only resulted in a GEL 20 million administrative spending cut. In addition, this amount was transferred to another article of the state budget, infrastructural projects, and hence the spending has not actually been decreased. The requirements determined by the directive of the Government of Georgia, maintaining fiscal stability and cutting the budget deficit, still remain among the top challenges for Georgia. Given the decrease in the risks about the implementation of the state budget, the government has not yet taken steps for decreasing spending aimed at facilitating the stability of GEL. At the same time, the national currency continues to depreciate.
