On 25 July 2014 the Parliamentary Minority MPs met with the new cabinet. During the meeting, the Parliamentary Minority MP, Levan Bezhashvili, talked about the 2013 annual budget deficit. “During the office of your government, our country lost GEL 1.5 billion. This included the GEL 700 million revenues of the budget and the USD half-a-billion currency reserves which were spent on the stabilisation of lari exchange rates,” said Bezhashvili.

The Minister of Finance of Georgia, Nodar Khaduri, disagreed with Mr Bezhashvili’s statement. “The reserves of the National Bank of Georgia grew by USD 500 million that year and then reduced again by USD 440 million, still amounting to a USD 60 million annual growth. In addition, the reserves of the National Bank have nothing to do with the budget of the country; hence, there can be no talks about a 1.5 billion deficit,” stated the Minister.

FactCheck took interest in these statements and verified their accuracy.

According to the data of the State Treasury, the revenues of the 2013 annual budget were equal to GEL 7,695 million whilst the planned amount was GEL 8,426 million. Hence, there was a GEL 730 million deficit in the 2013 annual budget.

According to the data of the National Bank of Georgia, the bank bought USD 575 million on currency auction until November 2013. From November the exchange rate of the lari started to drop and this lasted until February 2014. From November 2013 to January 2014 the National Bank of Georgia sold USD 440 million. Hence, the National Bank bought USD 115 million more than it sold.

However, the foreign currency reserves of the National Bank reduced by USD 50 million as compared to the end of 2012 which was mainly due to servicing the external debt. It should also be noted that by the end of October 2013 the foreign currency reserves had increased by USD 236 million as compared to the same period of 2012 and the final reduction of USD 50 million was the result of the events of November-December 2013. As of December 2012, the foreign currency reserves amounted to USD 2,652 million. In October 2013 the currency reserves were equal to USD 2,827 million whilst at the end of the year they dropped to USD 2,601 million. The reduction of the foreign currency continued in 2014 as well and dropped to USD 2,275 million as of June 2014.

It is true that the foreign currency reserves are not directly connected to the budget of the country; however, the depreciation of the exchange rates of the lari at the end of 2013 was caused by the budget deficit and the currency reserves were spent to stop the depreciation. A significant part of the budget deficit was compensated by the budget reserves or, in other words, the government deposits. The government reduced its deposits in the National Bank by GEL 453 million in the last quarter of 2013. In total the 2013 last quarter budget deficit was GEL 660 million. This means that the amount of money put into the economy by the government in three months was GEL 660 million more than the money received from the economy in revenues. As a result, the balance between the lari and the dollar was disrupted which caused the exchange rate of the lari to depreciate. In order to stop the further depreciation of the lari, the National Bank of Georgia sold USD 440 million from its foreign currency reserves from November to January. It should be noted that selling the currency reserves does not mean losing the money as it has only been exchanged into lari. However, this means that the National Bank lost part of its foreign currency reserve which is important for the stability of currency exchange rates and for a smooth conducting of external economic relations.

Conclusion

The 2013 annual budget deficit amounted to GEL 730 million. In order to stabilise the lari exchange rates the National Bank of Georgia sold USD 440 million from November 2013 to January 2014. Even though these figures are quite close to the numbers stated by the MP and show a negative tendency, the part of the statement about the government losing GEL 1.5 billion during its office is not true. The budget deficit does not mean that the country has lost the money and neither does the reduction of the foreign currency reserves. Hence, FactCheck concludes that Levan Bezhashvili’s statement: “During the office of your government, our country lost GEL 1.5 billion. This included the GEL 700 million revenues of the budget and the USD half-a-billion currency reserves which were spent on the stabilisation of lari exchange rates,” is HALF TRUE.

The Minister of Finance is right to say that talking about a GEL 1.5 billion loss is not accurate. The currency reserves have no direct connection to the budget of the country. However, the depreciation of the lari was caused by spending a great amount of budget money in the last quarter of 2013. In order to stop the depreciation, the National Bank was forced to use the foreign currency reserves. In order to stabilise the exchange rates of the lari, the National Bank of Georgia sold USD 440 million and reduced the 2013 currency reserves by USD 50 million as compared to 2012. As a result, the currency reserves were reduced by USD 50 million and not increased, as stated by the Minister.

FactCheck concludes that Nodar Khaduri’s statement: “The reserves of the National Bank of Georgia grew by USD 500 million that year and then reduced again by USD 440 million, still amounting to a USD 60 million annual growth. In addition, the reserves of the National Bank have nothing to do with the budget of the country; hence, there can be no talks about a 1.5 billion deficit,” is MOSTLY FALSE.