In order to assess changes of one particular country’s GDP in time, it is appropriate to analyze real GDP change to rule out the price change factor. However, Roman Gotsiridze uses nominal GDP in USD to support his claim that Georgia’s GDP has decreased. As a result, factual data provided by Mr Gotsiridze is accurate, although on the one hand, it is a mistake to use nominal figure to assess the economic growth in time and on the other hand, the only reason why USD denominated nominal GDP has decreased is depreciation of GEL and not any real changes in the economy.
The tendency of GDP change, measured in Purchasing Power Parity (PPP) is factually accurate as well. However, Mr Gotsiridze’s statement does not include comparison of Georgia’s economy with those of other countries (GDP PPP is primarily used for comparative analysis). Therefore, it is not clear, why that figure was named.
In the part of his statement, where the MP talks about the amount of debt, Mr Gotsiridze does compare absolute growth of GDP (PPP) to absolute growth of debt. In this case again, the data is mostly accurate, although the standard method to assess the amount of debt is to use debt to GDP ratio instead of comparing absolutely different growth rates. State debt to GDP ratio was increased because of revaluation of state obligations as a result of currency changes. Therefore, if we do not take the effect of currency exchange rate into account, the debt to GDP ratio is stable. Consequently, the data has been put into a wrong context in that part of the statement as well.
A member of the Parliament of Georgia from the United National Movement, Roman Gotsiridze, stated: “The country’s economy in USD has decreased as compared to 2012 and if you ask me why I make calculations in USD, I will answer that I rely on purchasing power parity and tell you to see the figures of the International Monetary Fund. Georgia’s economy in 2012, by the most objective assessment was 30.7 billion, whilst in 2017 it is 29.7 billion [39.7]. The average growth rate is 4.6% and in five years, Georgia’s economy increased by GEL nine billion, whilst the state debt has increased by almost as much.”
Variety of economic indicators (nominal GDP, real GDP, GDP PPP) are used to measure economic wealth produced in a country. However, none of those indicators are universally applicable to describe state of the economy and they are used for certain limited purposes. It is fitting to use each of those indicators to assess economy in a specific perspective.
In his statement, Roman Gotsiridze assesses GDP dynamic in time. Therefore, use of any nominal indicator is out of context, because nominal indicator is always impacted by price changes. Therefore, common practice to compare GDP in 2012 and 2017 would be analysis of real GDP change. In the given period, Georgia’s economic growth rate was 3.75% on average and in absolute numbers it increased from GEL 23.65 billion to GEL 28.42 billion. Clearly, this is a very poor economic performance for a developing country, however, talks about decreased economy are groundless.
At the same time, the MP speaks about decrease of USD denominated indicator (nominal GDP converted in USD), which is useless for analysis of changes in time. The only reason why USD denominated GDP has decreased is the depreciation of GEL against the USD. Of particular interest is that in accordance with Roman Gotsiridze’s claim, nominal GDP was used in the analysis because of purchasing parity. However, in order to assess dynamic, indicator of completely different context (nominal GDP in USD) was used instead of GDP PPP. Georgia’s GDP measured in PPP has been growing for the entire period, whilst in his analysis of GDP dynamic the MP used the only indicator which has decreased in that time (see table).
Of note is that in the period of 2012-2017, GDP (PPP) has indeed increased from Int. Dollar 30.7 billion to Int. Dollar 39.7 billion. However, taking into account the context of argumentation, it does not make sense to use GDP measured in PPP. The aim of this indicator is to compare economies of different countries, whilst the MP speaks about only one country (Georgia). Therefore, it is completely unclear, what is the aim of analysis of changes in this indicator.
Georgia’s Gross Domestic Product (billions)
|Real GDP (USD)||11.64||12.48||13.27||13.72||14.36||14.77||15.19||15.95|
|Real GDP (GEL)||20.74||22.24||23.65||24.45||25.59||26.32||27.07||28.42|
|Nominal GDP (GEL)||20.74||24.34||26.17||26.85||29.15||31.76||34.03||38.04|
|Nominal GDP (USD)||11.64||14.43||15.85||16.14||16.51||13.99||14.38||15.14|
|Real GDP Growth (%)||6.3%||7.2%||6.4%||3.4%||4.6%||2.9%||2.8%||5.0%|
|PPP GDP (Int. Dollar)||25.90||28.35||30.70||32.25||34.35||35.72||37.21||39.70|
It also unclear what Roman Gotsiridze mans whilst referring to the fact that GDP (PPP) and debt has both increased by nine billion. The aim of comparison of these two indicators is vague. Standard method to assess the amount of debt is analysis of debt to GDP ratio. In 2012-2017 Georgia’s debt to GDP ratio has increased from 34.9% to 44.6%. This happened largely because of revaluation (as a result of changes in GEL exchange rate) of Georgia’s obligations taken in the previous periods and not because of current inflows. If we do not take the impact of GEL exchange rate, debt to GDP ratio is stable. In 2012-2017, growth of state foreign and domestic debt in absolute numbers was USD 1.044 billion and GEL 1.633 billion respectively.