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Giorgi Vashadze: “This year, for the first time in the history of the independent Georgia, Moldova is ahead of us in terms of the GDP per capita.”

Verdict: FactCheck concludes that Giorgi Vashadze’s statement is MOSTLY FALSE.

Resume:Giorgi Vashadze made his statement drawing on the USD-denominated nominal GDP. However, a comparison of different economies in different years in this form is wrong because this indicator is not free from inflationary and currency exchange rate fluctuations. Economic growth/decline is measured by changes in the gross domestic product (GDP) which shows the volume of goods and services produced in a country. Given this definition, it is important that the GDP change indicator is reflective of the volume of produced goods and services instead of the dynamic of their prices or a USD-converted value.

For a comparison of the economies of different countries, the GDP per capita in constant PPP dollars, which is a homogenous indicator measured in terms of real purchasing power parity, is used for the measurement of a population’s quality of life and it shows the difference between the quality of life levels in various countries. Naturally, this indicator is to a certain extent artificial and cannot be absolutely accurate, although there is no better alternative for comparing different countries in different years. Moreover, a number of influential international organisations, such as the World Bank and the International Monetary Fund, etc., use this indicator. In terms of the GDP per capita in constant PPP dollars, Moldova has not surpassed Georgia in the past few years and “giving up a position” to Moldova is associated with the exchange rate. In other words, more goods and services were produced in Georgia in these years as compared to Moldova. Furthermore, Moldova was ahead of Georgia before 2005.

In 2012-2021, Moldova’s economy was growing more rapidly as compared to Georgia. In 2012, Georgia’s GDP per capita was 1.25 times higher than Moldova’s but this figure was only 1.08 in 2021. Therefore, that part of Giorgi Vashadze’s statement which claims that Moldova was developing faster than Georgia in the last years is true. However, the full picture is distorted in the statement and is misleading when it comes to Georgia’s economic development. In addition, it is also not true that Moldova surpassed Georgia in terms of the GDP per capita. Given all of the aforementioned, FactCheck concludes that Giorgi Vashadze’s statement is MOSTLY FALSE since there are elements of truth in his statement but important facts which may lead to different impression are ignored.

Analysis

Member of the Parliament of Georgia, Giorgi Vashadze, stated on air on TV Pirveli: “This year, for the first time in the history of the independent Georgia, Moldova is ahead of us in terms of the GDP per capita.”

The gross domestic product (GDP) indicates the total amount of goods and services produced in a year for final consumption in a country which is the measurement of the size and the scale of a country’s economy. The GDP volume can be measured by a number of indicators (the nominal GDP, the real GDP, the GDP converted into other currency), although they are not universally applicable for describing a trend.

Apparently, Giorgi Vashadze is speaking about the USD-converted nominal GDP since his figures are in line with the relevant statistics (see Table 1). Moldova surpassed Georgia in terms of the USD-calculated GDP per capita in 2020. In 2021, the nominal GDP per capita was USD 5,042 in Georgia and USD 5,315 in Moldova. In 2020, the same figure in the case of Georgia was USD 4,256 and USD 4,525 in the case of Moldova whilst Georgia’s GDP per capita was USD 4,696 and Moldova’s GDP per capita was USD 4,492 in 2019. Given the available statistics and based on this indicator, Moldova was ahead of Georgia only in 1995. However, the nominal GDP is not free from inflationary processes and using it for analysis in time (a comparison of data of different years) is wrong. It is even more erroneous to guide oneself with a USD-converted nominal GDP figure (and moreover, a comparison of the dynamics of different countries over years) which also includes the effect of currency exchange fluctuation apart from inflation and distorts the real trend.

For a comparison of the economies of different countries, the GDP per capita in constant PPP dollars, measured in terms of real purchasing power parity, is used as a measurement of a population’s quality of life and shows the difference between the quality of life in various countries. The PPP approach envisions that currencies in different countries across the world have a different purchasing power. Prices on products are lower in low-income countries whilst a currency’s purchasing power is higher (it is possible to buy more products with USD 1). For instance, one will be able to buy less products and services with USD 1,000 in USA as compared to Georgia. Therefore, a person who has a USD 1,000 income in Georgia is much “richer” as compared to a person who has USD 1,000 income in the USA. Therefore, the advantage of this indicator is that when assessing the GDP dynamic, it excludes the technical (non-essential) effect of the national currency exchange rate fluctuation. The GDP in constant prices measured in terms of purchasing power is used for analysis in time which also excludes inflation over time apart from the currency and the exchange rate fluctuations. Naturally, this indicator is to a certain extent artificial and cannot be absolutely accurate, although there is no better alternative for comparing different countries in different years

Table 1: Nominal GDP Per Capita in USD, Real GDP PPP (2017=100) and Real Economic Growth (%) in 2012-2021 in Georgia and Moldova

Source: World Bank

As illustrated by Table 1, Moldova has not surpassed Georgia in the past few years in terms of the GDP per capita in constant PPP dollars. In other words, more goods and services were produced in Georgia in these years as compared to Moldova. Moldova was ahead of Georgia before 2005. In 2021, Moldova’s GDP per capita (PPP) was USD 14,200 which constitutes a 58.1% growth as compared to 2012 whilst Georgia’s GDP per capita (PPP) in 2021 was USD 15,400 which is a 36.9% growth as compared to 2012. When it comes to the GDP per capita converted into the national currency, it increased by 36.2% in Georgia as compared to 2012 and by 42.3% in Moldova. For Moldova, the higher growth of the GDP per capita is associated with the soaring emigration rate from the country.