Resume: In accordance with the 2019 draft budget, the ratio of current expenditures[1] in the consolidated[2] and common budgets[3]
are to be decreased. In 2018, the consolidated budget’s current expenses to GDP ratio is expected to be at 23.0% (the common budget’s current expenses to GDP ratio is at 25.0%) whilst the consolidated budget current expenses to GDP ratio is estimated to be 22.6% in 2019 (the common budget’s current expenses to GDP ratio is at 24.6%). Among other things, the relative figures for administrative expenses will also be slashed.
In regard to capital expenditures,[4]their estimated amount for 2019 exceeds the figure for 2018. The growth of the consolidated budget’s net non-financial assets is 6.4% of the GDP in 2018 whilst it will be 6.7% in 2019. These figures increase by 0.3 of a percentage point when it comes to the common budget. In 2017, the consolidate budget’s capital expenditures to GDP ratio was 5.5%.
Analysis
The Deputy Minister of Finance of Georgia, Giorgi Kakauridze, stated at a presentation of the 2019 draft state budget that the budget’s current expenses are to be decreased whilst capital expenditures will grow. As stated by Mr Kakauridze, the current expenses to GDP ratio was 23% this year whilst the figure is planned to decrease to 22.6% in 2019.
Giorgi Kakauridze refers to consolidated budget figures in his statement. The consolidated budget incorporates the state budget, the autonomous republic’s budget and the self-governing units’ budgets and includes the operations of the spending institutions[5] of these budgets. The current expenses of a consolidated budget are the total sum of labour remuneration, goods and services, interest rates, subsidies/grants, social security and other expenses whilst capital expenditures indicate the budget’s non-financial assets’ growth figure.[6]At the same time, the trend of changes in fiscal data should be analysed in relative figures which are measured in comparison to the budget’s main indicators or are displayed as budget figures to the country GDP ratio. In the case of Mr Kakauridze’s statement, the trend of changes in the current expenses and the capital expenditures should be evaluated as compared to Georgia’s GDP.
The consolidated budget’s current expenses to GDP ratio is expected to be 23.0% in 2018 which is 1.2 percentage points less as compared to the previous year. In regard to the 2019 draft budget, the document reads that the current expenses to GDP ratio will be 22.6% which is 0.4 of a percentage point less as compared to 2018. In turn, a decrease in the relative figures for current expenses is stipulated by the decreased relative figures for administrative expenses in the consolidated budget. In 2018, the administrative expenses to GDP ratio is estimated to be 7.7% whilst it was 8.4% in 2017. According to estimates for 2019, the administrative expenses to GDP ratio will be decreased by 0.4 of a percentage point as compared to 2018 and will be 7.3%. In 2013-2016, the growth of the consolidated budget’s non-financial assets (capital expenditures) to GDP ratio was 3.4% on average whilst it increased to 5.5% of the GDP in 2017. The estimated figure for 2018 is 6.4% which is 0.9 of a percentage point more as compared to the previous year. In regard to estimates for 2019, capital expenditures are planned for 6.7% of the GDP next year.
Graph 1:
Consolidated Budget Current Expenses and Capital Expenditures (GEL Million, %)
Source: Ministry of Finance of Georgia
The common budget was drafted for implementing the government’s operations for 2019 and incorporates the central budget, the autonomous republic’s budget and municipal budgets together. In other words, it includes all operations at any budget level and of any budget organisation (legal entities of public law and non-profit legal entities). Therefore, it is interesting to take a look at the current expenses and the capital expenditures of the central budget.
Graph 2:
Central Budget Current Expenses and Capital Expenditures (GEL Million, %)
Source: Ministry of Finance of Georgia
Similar to the consolidated budget, the relative figures or the common budget’s current expenses decreased. In 2017, the current expenses to GDP ratio was 26.3% whilst this year it will be 25.0% and decrease further to 24.6% in accordance with the estimates for 2019. The administrative expenses to GDP ratio is planned for 9.4% for 2018 and is expected to decrease by 0.2 of a percentage point in 2019 – to 9.2%. At the same time, the common budget’s net non-financial assets’ growth (capital expenditures) component is going to be increased. In particular, it is planned for 6.7% of the GDP for this year and estimated to increase to 7.0% of Georgia’s GDP in 2019. The central budget’s capital expenditures to GDP ratio was 5.4% last year.
[1]
Operations envisioned by the budget which are carried out currently and have no investment purpose. These expenses include: labour remuneration, goods and services, interest rates, subsidies/grants, social security and other expenses.
[2]Consolidated version of the state’s, autonomous republic’s and self-governing units’ budgets which includes all operations made by these spending institutions.
[3]Consolidated version of the central, autonomous republic’s and unified municipal budgets which includes all operations made by these spending institutions as well as by budget organisations (legal entities of public law and non-profit legal entities).
[4]Operations envisioned by the budget which generate non-financial assets. These expenditures are considered as public investment and it is believed that they contribute to economic development in the long run.
[5]For state and autonomous republic budgets, it is a budgetary organisation envisaged in Tier One of the Programme Budgeting Classification. For local authority budgets, it is a self-governing authority.
[6] Net growth – the difference between the increase in non-financial assets and the decrease in non-financial assets.
