Murad Muradov: “Of the 483 million in assistance, 450 million is a loan, meaning an additional GEL 2 billion in debt on top of the over 60% debt to the GDP ratio and there is a probability that international financial organisations will add Georgia to the [black] list of countries with risks.”

Verdict: FactCheck concludes that Murad Muradov’s statement is HALF TRUE.

Resume:

On 10 June 2021, the Georgia and French Development Agency signed a partnership agreement for the 2021-2023 cooperation programme which implies the mobilisation of EUR 483 million in assistance by 2024. Of this money, Georgia will receive EUR 33 million as a grant and EUR 450 million as a loan.

Georgia’s national debt to the GDP ratio reached 62.5% in 2020 which is considered to be a critical threshold. However, the dramatic spike in debt for 2020 is mostly related to the pandemic-related crisis and the depreciation of the GEL exchange rate. Despite the aforementioned dynamics, Georgia’s debt will remain sustainable in a medium-term according to the estimates of both the Georgian government and authoritative international organisations and the debt to the GDP ratio will be reduced in parallel with the growth of the gross domestic product notwithstanding the growth of the nominal figure of Georgia’s national debt.

The fact that the government debt reached a critical threshold by 2020 means that the Georgian government will be able to take less loans in the future and have less disposable funds for current/capital expenses which is certainly a negative occurrence. However, making claims at this stage that the further growth of the debt (in a relatively moderate quantity) will lead Georgia to the “black list” of international organisations, which was not the case prior to the pandemic, lacks real ground.

Analysis

The Head of the Marneuli branch of the Lelo for Georgia political party, Murad Muradov, addressed the public through his personal Facebook account. Mr Muradov wrote: “I will explain briefly what this ‘assistance’ means: of the 483 million in assistance, 450 million is a loan, meaning an additional GEL 2 billion in debt on top of the over 60% debt to the GDP ratio and there is a probability that the international financial organisations will add Georgia to the [black] list of countries with risks.”

FactCheck took interest in the accuracy of the statement.

On 10 June 2021, the Georgia and French Development Agency (ADF) signed a partnership agreement for the 2021-2023 cooperation programme which implies the mobilisation of EUR 483 million in assistance by 2024. Of this money, Georgia will receive EUR 33 million as a grant and EUR 450 million as a loan. Georgia should make use of these funds in 2021-2023. According to the information of the press service of the Georgian government, the money will be spent on energy, private sector development, healthcare, ecology, agriculture, irrigation, water supply and regional development.

Georgia’s national debt comprises the domestic debt, denominated in the national currency, and the foreign debt, denominated in a foreign currency. In 2020, Georgia’s national debt was GEL 30.9 billion which constitutes 62.5% of the GDP. Having a debt to the GDP ratio above 60% is considered to be a critical threshold. The dramatic spike in the debt for 2020 is mostly related to the pandemic-related crisis and the GEL depreciation. In 2019, Georgia’s national debt was GEL 20.6 billion, translating into 41.9% of the country’s GDP. According to the current data of 2021, Georgia’s national debt is GEL 32.1 billion.

Graph 1: Georgia’s National Debt Dynamic in 2012-2021

Source: Ministry of Finance of Georgia, National Statistics Office of Georgia, author’s calculations

Despite the aforementioned dynamic, of note is that the debt to the GDP ratio based on current estimates and together with the growth of the GDP figure will shrink whether or not the nominal figure of the national debt grows. For instance, if at year X the debt to the GDP ratio is 60% and in year X+1 the GDP and debt grows by 10% and 5%, respectively, the debt to the GDP ratio will be reduced to 57%. Naturally, taking new debts does not automatically mean a growth of the debt to the GDP ratio, provided that the GDP is growing faster as compared to the debt.

According to the estimates of the Ministry of Finance, the government debt to the GDP ratio will be 54% by 2023. In addition, the government debt to the GDP ratio will contract to 51% by 2026 according to the International Monetary Fund’s calculations. The growth in Georgia’s obligations, to which Murad Muradov was referring, will be distributed through 2021-2023. Therefore, the fact that the government debt reached a critical threshold by 2020 means that the Georgian government will be able to borrow less in the future. However, making claims that a further growth of debt will lead Georgia to the “black list” of international organisations, which was not the case prior to the pandemic, lacks real ground. In order to corroborate this assessment, multiple IMF reports can be named, including its April 2021 assessment that the government debt remains sustainable [1] and despite the current challenges, the Law on Economic Freedom, which sets the government debt [2] to the GDP ratio ceiling at 60% has not been breached. [3] It is also noteworthy that despite the pandemic and the sharp growth in debt, the big rating companies (S&P, Moody’s, Fitch) have not lowered Georgia’s sovereign rating despite a deteriorated outlook.

[1] As clarified by the International Monetary Fund, debt is sustainable if the government is solvent without taking additional financial aid or declaration of bankruptcy.

[2] In contrast to national debt, government debt does not comprise the National Bank of Georgia’s debts.

[3] Under the state of emergency which may be caused by wars and pandemic, the government debt to the GDP ratio is legally allowed to exceed 60% for the three years.