Nino Evgenidze is Executive Director of the Economic Policy Research Center.

In comparison with 2013, current year began with better economic indicators. In particular, high growth rate was observed in January, February and March – with 7,4 percent quarter average. However, April saw a decrease to 2,7 percent.

One of the factors that ensured high growth rate in the first quarter was the base effect. This effect resulted from high budget expenditures made at the end of the previous year. Namely, the fourth quarter of 2013 saw large state budget expenditures. Out of total budget appropriations some 2.8 billion GEL was spent in the fourth quarter, i.e. 34 percent of total appropriations; whilst out of appropriations for infrastructure 765 million GEL was spent, which made up 49 percent of annual appropriations. Moreover, infrastructural spending was not only used to pay for already completed works. They were also used as advance payments for planned works that were consequently completed and declared – in the first quarter of 2014. This, accordingly, translated into increased VAT turnovers and hence, economic growth. As of April, the base effect has been eliminated and the growth pace has slowed down.

The situation with regard to mobilization of tax revenues in the state budget has improved in 2014 as compared to 2013. In the past three months the state budget received 1,639.4 million GEL and thus exceeded the planned target of 1,618.3 million GEL. This time around, the budget plan was fulfilled without any corrections of a quarterly plan at the end of the quarter – as it was repeatedly done in 2013. Previous year ended with up to 700 million GEL under collection in tax revenues. The shortfall in tax revenues did not occur only at the end of 2013. In reality, it was observed throughout the year against the initially estimated indicators. However, quarterly reviews of the state budget submitted by the government to the parliament showed 100.2% performance of tax revenues in the first quarter, 100.2% in the first six months and 100.1% in the first nine months. Judging by these data, the budget, at the first glance, must not have faced any problems in its performance. However, several days before the end of every accounting quarter, quarterly estimates had been consistently corrected as per the decrees of the Minister of Finance and as a result, the performance indicators exceeded 100% against the planned ones. Such a behavior pursued the goal of showing desired performance indicators to the society; however, it further strengthened a sense of instability in the private sector, undermined the trust towards the financial team of the government and questioned the ability of the government to tackle existing problems.

Even though for the first quarter of 2014, quarterly plan has not been corrected, the initially planned indicator should have been higher. In particular, the annual planned indicator of tax revenues in the 2014 budget exceeds the actual corresponding indicator in 2013 by 8.5%, whereas the plan of tax revenues for Q1 2014, drawn up by the Finance Ministry, exceeds the indicator of the last year only by 4.2%. Taking this into account it becomes clear that the state budget in Q1 2014 saw a shortfall of 46 million GEL and the government will have to mobilize this amount in the following quarters. This shortfall is way lower than in Q1 2013, though this issue requires to be reacted upon in a timely manner.
Q1 2014 saw a shortfall in the budget line for grants; namely, out of planned 51,8 million GEL only 3,2 million GEL was disbursed. It must be noted that the estimated indicator included two types of grants – a targeted grant in the amount of 33,8 million GEL intended for the implementation of investment and institutional projects and a budgetary grant amounting to 18.0 million GEL. According to operative report published by the treasury, the budgetary grant (EU grant) has not been disbursed whereas out of the targeted grants only 2 million GEL was received.

Similarly to grants, the budget line for other revenues has also underperformed – some 53,1 million GEL was mobilized instead of planned 74,3 million GEL. The shortfall partially accounts for the budget line for administrative dues and payments – 4.5 million GEL, as well as other revenues – 16,4 million GEL. The actual indicator of 2014 reached the corresponding indicator in 2013, although the planned target of this budget line exceeded the annual 2013 indicator by 13.4%. Consequently, it turns out that not only the plan of the current year was underperformed but also it failed to exceed the actual indicator of the previous year.

The direction of privatization is also worth noting. Amounts to be attracted in this direction was in surplus (planned indicator was 20,5 million GEL, whilst actual indicator comprised 38,2 million GEL) thereby partially compensating shortfalls in other areas. Overall, the total plan of budgetary receipts was performed by 97%.

As regards the spending, the total budget expenditure stands at 9 080.0 million GEL. Out of this amount, some 1 840.4 million GEL was spent in Q1 2014, which makes up 20% of the total plan. As the statistical data shows, the 20% spending indicator is the continuation of the trend which was outlined in previous years. In case of the following quarters, it is desirable for the rate of spending to be more stable and not be marked with a sharp acceleration in the last quarter of a year as this adversely affects monetary indicators and the exchange rate. The role of the government spending in the economy is strong, that is why accelerated spending in particular quarter distorts the true picture of economic growth and creates wrong expectations in the economy.