Resume: The indicator named in Bidzina Ivanishvili’s statement – the nominal GDP per capita (in terms of purchasing power parity, PPP) – has increased by 60% in 2019 as compared to 2012 and amounts to 15,600 international dollars. However, analysing the GDP dynamic based on this indicator lacks substance. On the one hand, the aforementioned figure is not free from inflationary processes; that is, it is significantly dependent on price growth and shows exaggerated growth. It is fundamentally wrong to use nominal figures to compare GDPs over time. On the other hand, the indicator Mr Ivanishvili uses (GDP PPP) is a technical figure conceived for comparison with other countries and it is irrelevant to use it for the measurement of the GDP dynamic of one single country. Rather, it is appropriate to use the real GDP calculated in the national currency.
In regard to the indicators for discussing the GDP dynamic, we need to analyse the real GDP growth which is adjusted for inflation. This indicator is a widely used and it is an objective measurement in order to assess the economic growth trend of a separate country and it is used by all authoritative organisations to measure a country’s economic growth. As compared to 2012, the real GDP per capita (PPP) in 2019 is increased by 33% instead of 60% and amounts to 14,900 international dollars. However, it is unclear why Bidzina Ivanishvili measured Georgia’s economic growth based on GDP PPP figures when no comparison was being made with another country. In 2012, the real GDP per capita (in 2015 constant prices) was GEL 8,162 and in 2019 it was GEL 10,835. Therefore, the real GDP growth rate in 2012-2019 was 32.7% which naturally shows a resemblance to the real GDP PPP growth rate. However, they differ when taken in absolute numbers (GEL 10,835 instead of 15,000 international dollars).
Analysis
The appendix to the open letter, published by the Georgian Dream on Bidzina Ivanishvili leaving politics, includes the following statement: “According to the International Monetary Fund's assessment, Georgia's GDP per capita in terms of purchasing power parity has increased by 60% as compared to 2012 and exceeds 15,000 international dollars in current prices.”
According to the International Monetary Fund’s (IMF) assessment, Georgia’s GDP per capita in terms of purchasing power parity has indeed increased by 60% and exceeded 15,000 international dollars in current prices. However, the IMF speaks about nominal instead of real figures. The approach of using nominal figures for analysis over time makes no sense and distorts reality (exaggerates growth volume).
The gross domestic product (GDP) is accepted as one of the economics and statistics indicators which properly reflects a population’s economic well-being. Generally, a country’s economy is measured in its national currency which shows the total sum of the goods and services produced in one year for final consumption.
To compare the economic success of different countries, however, the GDP per capita in PPP dollars is used which is one of the measurements of a population’s quality of life and reflects the difference between its quality of life and that of various other countries. Quality of life improves with the increase in distributable income per capita is. The PPP approach envisions that the national currencies in different countries have a different purchasing parity. Product prices in low-income countries are lower whilst the currency purchasing power is higher (it is possible to buy more products for USD 1). Therefore, the advantage of the PPP approach is that whilst comparing GDP dynamics, it ensures that the technical impact of the national currency’s fluctuation is excluded.
The figured named by Bidzina Ivanishvili; that is, the nominal GDP per capita (PPP) has increased by 60% as compared to 2012. However, analysing the GDP dynamic based on this indicator lacks substance since the aforementioned figure is not free from inflationary processes; that is, it is significantly dependent on price growth. Therefore, it is wrong to use nominal figures for the comparison of a GDP over different periods of time.
To analyse the GDP growth dynamic, a real; that is, inflation adjusted GDP growth rate is needed. This indicator is a widely used and objective measurement to assess the economic growth trend of a separate country and it is used by all authoritative organisations to measure a country’s economic growth.
Graph 1: Real GDP Per Capita, Nominal and Real GDP (PPP) Per Capita in 2012-2020
Source: International Monetary Fund, National Statistics Office of Georgia
According to 2019’s data, the real GDP per capita (PPP) increased by nearly 33% as compared to 2012. However, it is unclear why Bidzina Ivanishvili measured Georgia’s economic growth based on GDP PPP figures when no comparison was being made with other countries. In 2012, the real GDP per capita (in 2015 constant prices) was GEL 8,162 and in 2019 it was GEL 10,835. Therefore, the real GDP growth rate in 2012-2019 was 32.7% which naturally shows a resemblance to the real GDP PPP growth rate, at the same time being twice as less as compared to the growth rate named in Mr Ivanishvili’s statement.
Only the real GDP figure should be used to compare the GDP over different periods of time. The nominal GDP PPP as well as the nominal GDP are not free from inflationary pressure and make a wrong impression on the real changes of the size of the economy. Therefore, Bidzina Ivanishvili should have used the real GDP in order to make a comparison over time and this would have precisely shown the percentage growth of the economy since 2012. Therefore, the figures he named are technically accurate, although they distort the real context. Given these factors, FactCheck concludes that Bidzina Ivanishvili’s statement is a manipulation of facts.
