On 26 July 2016, the United National Movement published an infographic, entitled The Dream Impoverishes Us. As stated by the United National Movement, Georgia’s foreign debt was USD 3.99 billion in 2012 whilst it reached USD 4.4 billion in 2016 with the domestic debt having increased by more than GEL 1 billion in a four-year period. The debt to GDP ratio has also increased from 34% from 41%.

took interest in the accuracy of the United National Movement’s statement.

The country’s entire state debt is comprised of foreign and domestic debts. State foreign debt is the sum of the debts of both the Government of Georgia and the National Bank of Georgia whilst state domestic debt is the domestic debt of the Government of Georgia. The Ministry of Finance of Georgia publishes statistical information about the state debt. The website of the Ministry of Finance presents different kinds of data about the domestic debt. According to state finance statistics, Georgia’s domestic debt was GEL 1.89 billion (7.25% of the country’s GDP) at the end of 2012 whilst it reached GEL 2.87 billion (8.9% of the country’s GDP) at the end of June 2016. Information about state debt is given in a separate section on the website of the Ministry of Finance where we learn that Georgia’s domestic debt was GEL 1.22 billion in 2012 and reached GEL 2.39 billion at the end of June 2016. The difference is due to the fact that state finance statistics include “other credit debt” which amounts to GEL 672 million and comprises the debt of the citizens of Georgia dating from the Soviet period. However, both methods of calculation indicate that the country’s state domestic debt increased by approximately GEL 1 billion. Graph 1 illustrates how the state domestic debt fluctuated in the last years (including the “other credit debts”).

 State Domestic Debt (GEL billion)

In regard to the growth of foreign debt, the United National Movement has compared the debt of the Government of Georgia in 2012 to the state debt of 2016 which is not correct. State debt includes the debt of the National Bank of Georgia together with the debt of the government. In 2012, the state debt was USD 4.35 billion whilst it was USD 4.4 billion in June 2016. Therefore, growth constitutes approximately USD 50 million. The debt of the Government of Georgia taken separately was USD 4 billion at the end of 2012 whilst it increased to USD 4.4 billion at the end of June 2016 which means that the debt growth constitutes approximately USD 400 million. The significant difference between the decrease in government debt and the debt of the National Bank was registered because the National Bank’s foreign debt decreased by USD 348 million. At the end of 2012, the National Bank’s foreign debt was USD 360 million whilst it was only USD 12 million as of June 2016.

The aforementioned infographic published by the United National Movement shows that the most accurate method for the calculation of a state’s debt is to compare it to the country’s GDP (debt to GDP ratio). This is a correct approach because we cannot understand the size of a state’s debt burden by the nominal debt alone. A country’s debt can be very high as a nominal number but if its economy is also large (that is, the country is rich) a large nominal debt is not a problem. In 2012, Georgia’s debt to GDP ratio was 34%. As illustrated by Graph 1, the debt to GDP ratio peaked in 2015 when it reached 41.5% but dropped by 0.5% in 2016 and now amounts to 40%.

Of note is that the state foreign debt did increase by GEL 3 million which was largely the result of the GEL depreciation. The country takes foreign debt in foreign currency and it serves debts by purchasing USD with GEL. Therefore, the debt service in Georgia’s budget is calculated in GEL. Thus, any GEL depreciation will clearly affect foreign debt service. Even if the Government of Georgia had not taken additional foreign debt, the amount of GEL denominated debt would have increased both nominally and in the debt to GDP ratio.

 State Debt and Debt to GDP Ratio

In the period of 2012 to 2016, both the foreign and domestic state debt have increased. State domestic debt increased by approximately GEL 1 million whilst the domestic debt to GDP ratio increased by 1.7%. The statement of the UNM that the state foreign debt increased by USD 400 million is incorrect because the debt of the National Bank, which constitutes part of the foreign state debt, was not included in the 2012 data. After 2012, the state foreign debt increased by only USD 48 million. The United National Movement would have been correct if it had used the term “foreign debt of the Government of Georgia.”

As a result of the increased domestic debt as well as the GEL depreciation, GEL denominated state debt increased by GEL 4 billion. Respectively, the debt to GDP ratio increased from 34% to 41%. The best indicator for the debt burden is indeed the debt to GDP ratio.