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Section 10. Economics and management
https://doi.org/10.29013/ESR-21-5.6-75-78
Giguashvili Giuli,
Doctor of Economics, Professor, Gori State Teaching Universityy
Gori, Georgia.
E-mail: giuligiguashvili@gmail.com Khorguashvili Tea, Doctor of Economics, Professor, Gori State Teaching University, Gori, Georgia.
E-mail: tkhorguashvili@yahoo.com Makasarashvili Tamar, Doctor of Economics, Professor, Gori State Teaching University,
Gori, Georgia.
E-mail: tmakasarashvili@gmail.com Khorguashvili Natia, Doctor of Economics, Associate Professor. European University,
Tbilisi, Georgia.
E-mail: khorguashvili.natia@eu.edu.ge
PROBLEMS OF STATE DEBT MANAGEMENT OF GEORGIA IN THE PANDEMIC
Abstract. The COVID-19 pandemic caused the economic crisis in Georgia, as well as in many other countries of the world, and aggravated economic, social, cultural, educational, and other problems. Due to the pandemic, the restrictions and regulations introduced by the state sharply hindered economic activity, increased unemployment, aggravated inflation, and made the social problems of the population even more unbearable.
The Georgian government has been forced to increase public debt, which has been growing in recent years and is a heavy burden on the country's population.
The paper analyzes the measures taken by the Government of Georgia to overcome the crisis caused by the pandemic and expresses views on the potential challenges of the post-pandemic period, the tendency of public debt growth, the peculiarities of management.
Keywords: COVID-19 pandemic, public debt, public debt management.
The advent of COVID-19 has changed the nificantly affected the Georgian economy. Accord-agenda of the whole world. The pandemic has sig- ing to the National Statistics Office of Georgia, in
November 2020, compared to the same period of the previous year, the decline in the real gross domestic product(GDP) was 7.7 percent, while the average for the first eleven months of2020 is -5.9 percent [1].
On September 15, 2020, according to a preliminary assessment by the International Monetary Fund (IMF) mission, the impact of the pandemic on healthcare in Georgia was successfully controlled, although Georgia's foreign policy deteriorated as tourism revenues virtually disappeared. In March 2020, compared to March 2019, the number of tourists decreased by 56.1%, and the income from tourism - by 26.1%; There was a 9% decrease in the number of remittances. In 2020, the foreign trade turnover of goods in Georgia amounted to 11347.7 million USD, which is 14.8 percent less than the corresponding figure of the previous year. At the same time, prices have risen significantly. Annual inflation was 6.3%, and core inflation was 4.2% [1].
To reduce the social and economic impact of the pandemic, with significant support and funding from the international community, the government was able to implement significant fiscal support measures: the government increased social spending, introduced temporary tax breaks for residents and businesses, to maintain its activities, subsidies were allocated to the pandemic-affected sectors, the National Bank of Georgia eased capital and supervisory requirements, etc.
To limit the spread of the epidemic, emergency regulations were enacted in many countries around the world, including Georgia: movement was restricted, municipal services, educational institutions, and trade facilities were moved to remote operation mode, crowded events were banned, social distance protection became mandatory, etc. Although a comprehensive social and economic assessment of the effects of these measures has not yet been made, studies indicate that strict measures may have managed to control the spread of the virus but almost completely halted economic activity, further aggravating the living conditions of the income-poor population.
Given the negative impact on certain sectors of the economy in the face of restrictions, employment is expected to decline in Georgia. According to the PMCG forecast, according to the optimistic scenario, the total number of employees in Georgia will decrease by 6.3%, according to the less pessimistic scenario - by 9.8%, and in case of a very pessimistic scenario - by 14.4%. Naturally, the unemployment rate will increase; The negative impact of the pandemic will change the structure of employment in Georgia and make the self-employed group, which according to 2019 data constitutes 44% of the labor force [2].
Mobilization of funds has been put on the agenda to take measures to stop the spread of the pandemic across the country, to optimize the health sector and improve the infrastructure, to provide the population with vaccines, to provide social support, to help entrepreneurs, to promote economic recovery. Due to the crisis in the country, the Government of Georgia has mobilized two billion GEL in the state budget for 2020, which was aimed at supporting the country's economy. In addition, GEL 351 million was allocated to the budget for the challenges related to the COVID-19 pandemic in the health sector [3].
Government debt consists of two parts: government debt and the National Bank's external debt. Public debt can be seen as one of the tools to stimulate economic growth. However, inefficient public debt management may lead the country to crisis instead of economic growth. Therefore, prudent management of public debt is important to ensure the sustainable development of the country. The debt of the Government of Georgia includes domestic and foreign debts. Government domestic debt as of 30-04-2021 amounts to 5 billion 871 million GEL. External debt - 25 billion 949 million GEL [4].
By 2021, public debt will increase to a total of 33.7 billion GEL, and GDP is expected to exceed 60%. Debt increased by + 1.4 billion GEL and +7 billion GEL in 2019 and 2020, respectively in 2021, it is expected to increase by +2.5 billion GEL. In 2021, the cost of debt service will increase to 7.2% of the
budget. The debt service burden on the budget will increase to 918 million GEL in 2021 (+314 million GEL compared to 2019). Under the depreciation of the GEL exchange rate, the debt burden is expected to increase even more [5].
Undoubtedly, taking on external debt is an important way to attract financial flows. The Georgian government has been using foreign loans since 1992. In the 1990s, Georgia had virtually no choice but to turn to foreign governments and international financial and credit organizations to solve the problems of the transition to a market economy. External debt consists of government sector debt, as well as commercial and National Bank foreign debt and intercompany loans. Over the years, Georgia has accumulated a considerable amount of foreign debt. At the end of 2019, gross external debt increased by 3.9 percentage points compared to the previous year and amounted to 105.1 percent of GDP [6]. The increase was mainly due to the increase in the government sector and bank debt. According to the data ofJanuary 2021, the state foreign debt of Georgia is almost 7 billion 800 million dollars, which is more than 25 billion GEL. External debt plays a key role in financing Georgia's economic development and infrastructure projects.
Foreign debt for any country is determined by the ratio of external debt to the country's gross domestic product. According to the recommendations of the International Monetary Fund, the debt ratio of developing economies to GDP should not exceed 40-50%, as the increase of this indicator threatens the stability of the country's macroeconomic indicators and makes the country more vulnerable to the expected economic shocks.
Another indicator of the country's external debt burden is the number ofliabilities per capita. In 2019, this figure is about 5600 GEL, and in 2020, this figure has increased to 7400 GEL. Georgia owes its foreign debt in dollars, so the depreciation of the lari makes the foreign debt more expensive and the burden on each population increases even more. It is also im-
portant that a large number of dollars flow out of the country at payment, which directly affects the value of the national currency and the exchange rate. It should be noted that in the fourth quarter of2020, the nominal effective GEL exchange rate depreciated by 3.3% quarterly and by 3.0% annually. As for the exchange rate adjusted for price level differential, in the fourth quarter of2020, the real effective exchange rate depreciated quarterly and annually by 3.4% [7, 12].
It should be noted that before the pandemic, Georgia was a country of medium debt and also met the recommended limit of international financial institutions. The country borrowed an additional 10.2 billion GEL in 2020, and as of December 31, 2020, Georgia's foreign debt amounted to 30.9 billion GEL. According to the draft government budget for 2021, the country plans to take on 2 billion 174 million foreign debts and at the same time plans to repay the foreign debt with 2 billion 640 million GEL. Particular importance is attached to the efficient spending of finances and the reduction of corruption risks [8, 18].
We think that with the gradual easing of restrictions, economic activity in the country will improve. However, the start of the vaccination process has created positive expectations for the end of the pandemic. According to the International Monetary Fund (IMF) forecast for January, if the global economy shrinks by 3.5% in 2020, global growth of 5.5% is expected in 2021. As for developing countries, their real economies will shrink by 2.4% in 2020, while growth is projected to grow by 6.3% in 2021 [7].
Conclusion. We think the gradual lifting of restrictions will significantly reduce the economic and social losses that each day of restrictions would cause. It is important to reduce government spending not only in the pandemic, but also in the post-pandemic period, and to make rational use of budget allocations for them in public institutions; In addition, the transparency of this process should be ensured. The government should fully provide the population with vaccines, tests, and appropriate
equipment. Georgia, like the rest of the world, faces the greatest challenge, the government needs to draw up a detailed plan to reduce public debt
to rebuild its economy and effectively manage its public debt; Plan tax revenues taking into account post-pandemic risks.
References:
1. National Statistics Office of Georgia. URL: https://www.geostat.ge
2. Impact of COVID-19 on the Georgian Economy Economic Overview and Indicators, [Electronic resource]. URL: https://pmcresearch.org/publications_file/09e95ea2bcea7f05b.pdf / (in Georgian).
3. Pandemics and Corruption Risks, The Institute for the Development of Freedom of Information (IDFI), 7 April 2020. URL: https://idfi.ge/ge/pandemics_and_corruption_risks
4. Ministry of Finance of Georgia, Public Debt Statistics. URL: https://mof.ge/saxelmwifo_valis_statis-tika/ (in Georgian)
5. The Institute for the Development of Freedom of Information (IDFI), Budget Draft Review 2021. [Electronic resource]. URL: https://idfi.ge/public/upload/Article/Budget2021FInal.pdf
6. Ministry of Finance of Georgia, Quarterly Review of Economic Trends, I Quarter,2020. URL: https://www.mof.ge/images/File/2020publikaciebi/kvartaluri/0utlook%202020Q1 GEO.pdf
7. National Bank of Georgia, Monetary Policy Report, February 2021. URL: https://www.nbg.gov.ge/ uploads/publications/moneratyfiscal/2021/mpr_2021q1_geo.pdf
8. Bragvadze R. Georgia's External Debt, March 26, 2021. [Electronic resource]. URL: https://forbes.ge/ saqarthvelos-sagareo-vali-2
