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Resume: As compared to 2016, the total investments in 2019 increased 1.3 times and the state investments have doubled. The state investment to gross domestic product (GDP) ratio is also growing.

However, the 2019 deficit figure is not minimal and there is a growth as compared to the past years both in absolute and relative figures. In particular, the budget deficit in 2016 was GEL 479 million (1.3% of the GDP) whilst the modified deficit amounted to GEL 1 billion (2.9% of the GDP). As of 2019’s data, the budget deficit amounts to GEL 1 billion (2.4% of the GDP) whilst the modified budget amounts to GEL 1.2 billion (2.4% of the GDP). The modified budget deficit to the GDP ratio has improved as compared to 2016, although it worsened as compared to 2018. Therefore, the part of the statement about the deficit reaching a historic low does not correspond to the reality.

Analysis

The Minister of Finance of Georgia, Ivane Machavariani, at the Minister’s Hour before the Parliament of Georgia, stated: “As compared to 2016, we almost doubled the volume of state investments but we have not done it at the expense of the budget deficit’s growth. On the contrary, the budget deficit has a decrease trend. In 2019, we had a historic minimum [of deficit.]”

Ivane Machavariani speaks about the total capital formation figure which is a GDP component and includes capital investments made by the state and private investors. Investments significantly affect a country’s GDP growth since the invested money is mostly spent to launch new enterprises, expand existing ones and support technological renovations. State investments largely are government expenses made in infrastructural projects which are intended to contribute to the economic activity in the country.

Table 1: Dynamics of State and Private Investments in 2016-2019

2016

2017

2018

2019

Total Investments

10,805

11,124

12,543

14,163

State Investments

1,729

2,313

2,859

3,480

Private Investments

9,076

8,810

9,682

10,683

Total Investments to GDP Ratio

30.2

27.3

28.1

29.0

State Investments to GDP Ratio

4.8

5.7

6.4

7.1

Private Investments to GDP Ratio

25.3

21.6

21.7

21.8

Source: Ministry of Finance of Georgia

As compared to 2016, the total investments in 2019 increased 1.3 times and the state investments have doubled. The state investment to the gross domestic product (GDP) ratio is also growing from 4.8% to 7.1%.

Table 2: Dynamics of Deficit and Modified Deficit in 2016-2019

2016

2017

2018

2019*

Deficit (GEL Million)

479.4

324.1

323.4

1047.0

Modified Deficit (GEL Million)

1 025.1

1 112.8

1 017.6

1 176.8

Deficit to GDP Ratio (%)

1.3

0.8

0.7

2.1

Modified Deficit to GDP Ratio (%)

2.9

2.7

2.3

2.4

Source: Ministry of Finance of Georgia

In the case of a deficit, we can discuss the modified deficit which considers the operations made by financial assets as a source of deficit formation. Therefore, we can assume that the modified deficit is a more relevant indicator. However, 2019’s deficit figure is not the lowest and there is growth as compared to past years both in absolute and relative figures. In particular, the budget deficit in 2016 was GEL 479 million (1.3% of the GDP) whilst the modified deficit amounted to GEL 1 billion (2.9% of the GDP). As of 2019’s data, the budget deficit amounts to GEL 1 billion (2.4% of the GDP) whilst the modified budget amounts to GEL 1.2 billion (2.4% of the GDP). The modified budget deficit to GDP ratio has improved as compared to 2016, although it worsened as compared to 2018. Therefore, the part of the statement about the deficit reaching a historic low does not correspond to the reality.