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Ana Dolidze: “After eight-nine years [of the Georgian Dream’s rule,] the external debt constitutes half of the GDP.”

Verdict: FactCheck concludes that Ana Dolidze’s statement is HALF TRUE.

Resume:

In 2012, Georgia’s public external debt was GEL 7.2 billion. [1] The nominal figure increased 3.4 times and reached GEL 24.7 billion by 2020. Ana Dolidze employs relative figures whilst analysing the debt dynamic which is an appropriate approach economically speaking. In 2020, Georgia’s external debt was indeed 50% of the GDP as stated by Ms Dolidze which constitutes 23.5 percentage points of growth as compared to 2012.

The context of the statement is definitely intended to criticise the government. However, it makes no reference to the fact that the sharp growth of both the total and the national external debt in 2020 was stipulated by the COVID-19 pandemic which unleashed an unprecedented economic crisis. Prior to 2020, Georgia’s external public debt was 33.4% of the GDP which is 6.9 percentage points of growth as compared to 2012. In 2020, Georgia certainly has not been an exception in terms of a sharp growth of debt figures. The sovereign debt growth is a worldwide problem.

An additional aspect to take into account is the volatility of the GEL to USD exchange rate in 2012-2020. The exchange rate fluctuation significantly affected the GEL-denominated figure of the external debt. At the same time, the government can only be partially held responsible for the sharp depreciation of GEL since 2014.

Analysis

The leader of the For People political party, Ana Dolidze, made the following statement in regard to pensions: “What benefits did Gakharia’s being a Prime Minister or not being a Prime Minister actually bring? He was the highest ranking official in the government for eight-nine years and look at the state of our economy today where the external debt constitutes half of the GDP.” In her statement, Ms Dolidze intended to evaluate Giorgi Gakharia’s political statesmanship, including the economic outcomes of his working in different positions in the Georgian Dream government.

The public debt has been a constantly pressing issue in the last years. Interest has surged particularly amid the novel coronavirus pandemic. The public debt consists of the domestic debt denominated in the national currency and the external debt denominated in foreign currency, respectively.

In 2012, Georgia’s external debt was GEL 7.2 billion. The nominal figure increased 3.4 times and reached GEL 24.7 billion by 2020. Ana Dolidze employs relative figures whilst analysing the debt dynamic which is an appropriate approach economically speaking since any specific absolute number can be very high vis-à-vis a small economy and very low against a larger one. To comprehensively assess a debt burden, the most widely accepted indicator is the total debt to the GDP ratio which politicians often overlook. The external debt in 2020, in line with Ms Dolidze’s statement, constitutes 50% of the GDP which shows 23.5 percentage points of growth as compared to 2012.

Graph 1: Public Debt Dynamic in 2012-2020 (GEL Million, GDP %).

Source: Ministry of Finance of Georgia, National Statistics Office of Georgia

Although Ana Dolidze’s figure is accurate and a relative indicator is used for the analysis, it should be emphasised that the context of the statement is definitely intended to criticise the government. The statement does not highlight that the sharp growth of both the total and the public external debt in 2020 was stipulated by the COVID-19 pandemic which unleashed an unprecedented economic crisis. Prior to 2020, Georgia’s external public debt was 33.4% of the GDP which is 6.9 percentage points of growth as compared to 2012. In 2020, Georgia certainly has not been an exception in terms of a sharp growth of debt figures. One of the standard crisis response mechanisms routinely used of late by the absolute majority of the world’s countries is to stimulate the economy with budget resources and counter-balance surging social problems. The fiscal component of the government response affects the country’s budget in two areas – on the one hand, the expenses for social assistance and stimulating the economy grow and, on the other hand, economic activity contracts and, therefore, the budget receives less tax incomes as compared to planned amount. Given these circumstances, a sharp growth of the debt was brought to the agenda.

Of additional note whilst speaking about debt growth is the GEL to USD exchange rate volatility. In particular, the new exchange rate is applied for the calculation of not only the added debt in a period (the debt taken in one year) but the balance figure of the debt previously accumulated (the unpaid part of the debt taken in the past) after changes in the exchange rate. Therefore, the growth of the government debt was largely stipulated by a recalculation of the previously accumulated debt balance in accordance with the new exchange rate. On the other hand, the government can only be partially held responsible for the sharp depreciation of the GEL exchange rate since 2014.

[1]This does not include the so-called legacy debts. As opposed to the government debt, the public external debt also includes the National Bank’s debt.