On 30 April 2014, representative of the Parliamentary Minority, Zurab Melikishvili, delivered a speech at the session of the Georgian Parliament and stated:  “In 2013, we had a shortfall of GEL 703 million in the budget expenditures. The said GEL 703 million was designated for projects that were to be implemented in different villages but will not be implemented any more. Tax revenues decreased by GEL 633 million. This year, already in the first quarter, government receipts revealed a shortfall of GEL 62 million.”

FactCheck

inquired about the accuracy of the data indicated by the MP and verified the facts.

First and foremost, it should be clarified that the Budgetary Code of Georgia mentions no such term as a ‘budgetary shortfall.’ The Code employs the term ‘budgetary plan execution/failure of execution.’ In general, the term ‘budgetary shortfall’ can be used when the budgetary revenues fall short of the projected amount or the expenditures foreseen in the budget have not been fully executed. Accordingly, the meaning of this term in a particular statement depends upon the author of the statement and his personal interpretation of the concept.

Table 1:

 State Budget Expenditures (GEL thousand)

Source: Ministry of Finance of Georgia; mof.ge

Table 1 reveals that in line with the approved budgetary plan of 2013, expenditures were to amount to GEL 7,248 million whereas in the revised budget the indicator equalled GEL 7,006 million. The factual budget execution totalled GEL 6,546 million. The factual indices are GEL 703 less than envisaged in the approved plan and GEL 460 million less than the revised budget. Therefore, the comparison of the approved plan with the factual execution reveals a shortfall in the amount of GEL 703 million which proves the number mentioned by the MP to be perfectly accurate.

Spending less funds than foreseen in the budgetary plan can economically be described as a negative factor as the planned expenditures have their own purpose and are designated for the implementation of specific projects and activities. Employment of less financial resources than envisaged in the plan implies that some of the activities planned for the year have not been implemented. However, there are cases when the activities are implemented according to the plan but they use up less resources than originally projected in the budget. At first sight this fact seems to be very favourable as the planned projects were executed with less resources, however, this scenario has certain negative aspects as well (although outweighed by the positive aspects of the fact). When the implementation of specific operations requires less funds than were expected in the budgetary plan, it is entailed that the expenditures were not projected accurately and the saved funds could have been employed for the execution of other projects (the projects which were urgent in that year and could not have been delayed to the next). Consequently, in any of the abovedescribed scenarios, the failure of the execution of budget expenditures is an unfavourable fact for the economy.

For a better analysis of the state economy in terms of budget execution it is necessary to examine the budget execution indices for the first quarters of 2012, 2013 and 2014. In line with the approved plan of 2012, budget expenditures were to total GEL 6,883 million while the factual execution amounted to GEL 6,566 million. Consequently, the shortfall in the expenditures of the 2012 state budget equalled GEL 317 million. This indicator is clearly less than the shortfall of GEL 703 million recorded in the 2013 budget or GEL 460 million. As for the first quarter of 2014, we witness a shortfall of GEL 316 million in the budget expenditures as opposed to GEL 65 million in the first quarter of 2013. Consequently, it becomes evident that in 2014 we observe negative dynamics relative to the previous year (according to the indices of the first quarters).

As for the tax revenues of 2013, they totalled GEL 6,288 million whereas in 2012 the indicator stood at GEL 6,311 million. The difference between these figures equals GEL 23 million and this number is significantly smaller than the figure indicated by the MP – GEL 633 million. However, it is to be taken into consideration that in this case the MP referred to the failure of execution of the 2013 budgetary plan of tax revenues; that is, the shortfall in tax revenues. In line with the budgetary plan, tax revenues were projected to total GEL 6,920 million while the factual execution amounted to GEL 6,287 million. Consequently, tax revenues revealed a shortfall of GEL 632 million which precisely corresponds to the figure mentioned in the statement.

For a more detailed economic analysis of the subject of tax revenues we will discuss the execution of tax revenues in the first quarters of 2012, 2013 and 2014. In 2012 tax revenues were projected to equal GEL 6,300 million while the budget execution amounted to GEL 6,311 million. Consequently, in 2012 tax revenues exceeded the planned amount by GEL 11 million. According to the plan of the first quarter of 2013, tax revenues were to amount to GEL 1,550 million and the factual execution equalled GEL 1,553 million. Accordingly, in the first quarter of 2013, tax revenues exceeded that projected figure by GEL 3 million. It follows that in 2012 we witnessed a more favourable situation in terms of tax revenues than in 2013. As for the indices of the first quarter of 2014, tax revenues were forecast to amount to GEL 1,618 million while factual execution totalled GEL 1,639 million. Evidently, in the first quarter of 2014, tax revenues registered a surplus of GEL 21 million which exceeds the same indicators of 2013 and 2012.

In his statement Zurab Melikishvili also discusses the budget shortfall in the first quarter of 2014. The budgetary plan of the first quarter of 2014 projected budget receipts at GEL 2,099 million while in actuality, the receipts of the first quarter totalled GEL 2,038 million. Consequently, in this regard the budget reveals a shortfall of GEL 62 million which also precisely corresponds to the figure indicated by the MP. As for the receipts of the same period of 2013, in the first quarter of the previous year the projected budget prior to revision forecast receipts to amount to GEL 1,982 but the factual execution totalled only GEL 1,795 million. Accordingly, in the first quarter of 2013 we witness a shortfall of GEL 188 million in the budget.

Conclusion

Our inquiry into the accuracy of Zurab Melikishvili’s statement uncovered that the expenditures of the 2013 budget showed a shortfall of GEL 703 million when compared to the approved budget. Expenditures of the 2012 budget revealed a shortfall of GEL 317 million. As for the first quarter of 2014, we observe a shortfall of GEL 316 million in expenditures while the same indicator of 2013 equals GEL 65 million.

Tax revenues of 2013 were planned to amount to GEL 6,920 million while the factual execution totalled GEL 6,287 million. Consequently, tax revenues register a shortfall of GEL 632 million in 2013. As concerns the indices of the first quarters of 2012, 2013 and 2014, in 2012, tax revenues revealed a surplus in the amount of GEL 11 million, in the same period of 2013 – GEL 3 million and in 2014 – GEL 21 million.

In the first quarter of 2014 the budgetary shortfall (shortfall in the budget receipts) amounted to GEL 62 million while in the first quarter of 2013, the shortfall equalled GEL 188 million.

As can be gathered from the data given above, the MP correctly indicates the indicators. It is also evident that the shortfall registered in the 2013 budget expenditures and tax revenues exceeds the same indicators of the previous years (that is, in 2013 we witnessed a worse situation in this regard than in 2012). As for the budgetary shortfall in the first quarter of 2014 (GEL 62 million), with this indicator we have a more favourable situation than in the preceding year (GEL 188 million).

We conclude that Zurab Melikishvili’s statement:  “In 2013 we had a shortfall of GEL 703 million in the budget expenditures. Tax revenues decreased by GEL 633 million. This year, already in the first quarter, government receipts revealed a shortfall of GEL 62 million,” is TRUE.

Originally published in The Financial, issue N. 22 (402)