Discussing economic affairs in his interview to the television company Russia Today on 2 December 2013, PM Irakli Gharibashvili stated: “A majority of foreign debt has been accumulated precisely during their governance [the United National Movement]. This year, we were compelled to allocate a significant amount of money for the repayment of foreign debt. We will have to do the same in the coming year as we need to pay back roughly USD 800 million. We are obliged to repay the debt which was taken by the previous government.”FactCheck
looked into the statistical data on the foreign debt, inquired about the management of the debt and, based upon the findings, checked the accuracy of the statement.Table 1: Statistical Data on Government Debt
As of 30 September 2012, the state foreign debt amounted to GEL 7,206 million. The figure depicted in the table above – GEL 7,218 million represents an indicator of 31 December 2012. As can be gathered from the table, in 2004 foreign debt totalled GEL 3,390 million. In the period from 2004 to 2012 it doubled and saw an increase of GEL 3,816 million.Graph1: Government Debt in Respect to Nominal GDP
As can been in the graph, foreign debt accounts for the majority of the total debt and the dynamics of the two are strongly resembling each other. The percentage of the state foreign debt in respect to the nominal GDP keeps falling throughout several years starting from 2003 (44.9%) and goes down to 16.8% in 2007. From 2007 to 2010 the figure takes an upturn again and reaches 33.6%. Beginning from 2010 the indicator starts decreasing and remains relatively stable over the following years. In 2012 the share of foreign debt with regard to the nominal GDP falls down to 27.6%; in 2013, the budget prognosis forecasts it at 27.9% while in the 2014 budget the indicator is set at 27.7%.
As can be drawn from Table 1, in the period since 2004 to 2012, foreign debt has indeed grown notably, as noted by the PM, seeing an increase of GEL 3,816 million. In this regard it is also of importance to discuss the Economic Freedom Act which was adopted by the Parliament of Georgia in 2011 (entered into force on 31 December 2013) which defines the government debt limit in the amount of 60% of the total GDP. Taking into consideration the said Act and bearing in mind the indicators of Graph 1, it can be assumed that the sum of foreign debt accumulated throughout the years 2004-2012 does not fall as a particularly heavy burden upon the state economy. Therefore, the pathos of heavy criticism felt in the PM’s statement is not entirely relevant in this case.Table 2: Statistical Data on Decrease of Liabilities
As can be derived from Table 2, from 2004 to 2012 the volume of decline in the foreign liabilities varied within the range of GEL 200 million.
At present, we hold the 2013 state budget execution data for 11 months only. In line with the available data, in 11 months foreign liabilities shrank by GEL 381 million which amounts to 78% of the yearly plan as the forecasted external debt decrease was set at 472 million (see table above). However, ostensibly, the amount of foreign debt repaid in the 11 months of 2013 – GEL 381 million – still significantly surpasses the average amount of debt returned in the preceding years. Consequently, Irakli Gharibashvili correctly indicates that a significant portion of the external debt had been paid back in 2013. It is also to be mentioned that the 2013 budget presented by the UNM government planned a debt decrease in the amount of GEL 536 million of which foreign liabilities were to be alleviated by GEL 473 million and domestic debt – by GEL 63 million. These figures are very similar to those found in the budget presented by the new government (see Table 2).
Table 2 also presents forecasted data for 2014 which conveys that pursuant to the Law of Georgia on the 2014 State Budget, foreign liabilities are to be decreased by GEL 532 million in 2014. This represents only a principal amount of the debt. If we add the amount accumulated through charged interest rates, the number rises to GEL 720 million. As the debt decrease denotes a decrease of only the principal amount of the liability, discussing the debt decrease of 2014 we are referring to only GEL 532 million. Translating this sum into USD we get the number USD 300 million. Therefore, the PM’s statement, “We will have to do the same in the coming year as we need to pay back roughly USD 800 million of the external debt,” is not accurate. Even presuming that the PM is referring to the volume of the debt with the interest rate included – GEL 720 million (equals approximately USD 400 million), the figure we get is still significantly less than the number indicated by Gharibashvili (USD 800 million).
The Prime Minister of Georgia, Irakli Gharibashvili, speaks about the large volume of the foreign debt taken during the previous government. From 2004 to October of 2012 external debt has indeed seen an upturn (a double increase) but considering the percentage of the debt in respect to the nominal GDP and relying upon the Economic Freedom Act, it is safe to say that the accumulated debt does not represent a markedly heavy burden to the present economy. In accordance with the budget execution report on 11 months of 2013, the liabilities shrank by GEL 381 million which represents a surmountable figure in comparison to the earlier years. The 2014 state budget foresees the volume of foreign liabilities to be alleviated by GEL 532 million which roughly equals USD 300 million.Consequently, we conclude that the PM’s statement, “A majority of foreign debt has been accumulated precisely during their governance [the United National Movement]. This year, we were compelled to allocate a significant amount of money for the repayment of foreign debt. We will have to do the same in the coming year as we need to pay back roughly USD 800 million of the external debt,” is HALF TRUE.