TBILISI, DFWatch–The National Bank of Georgia advises the government to cut expenses and revise its tax policy in order to avoid currency fluctuation.
The NBG sent parliament its recommendations letter over the adjusted state draft budget 2015, concluding that it didn’t reflect properly all ways to eliminate problems.
According to the NBG, the Georgian economy is in “significant shock” which is stipulated by a strengthening of the US dollar against all main currencies as well as by the difficult geopolitical situation in the region.
“This shock has been further aggravated by the process going on inside the country, including unfounded allegations made against the policy of the National Bank and a possible weakening of the bank supervision,” the NBG concludes, referring to the drawn-out conflict with the government and the majority Georgian Dream coalition in parliament, and parliament’s recent approval of a bill which will relieve the NBG of responsibility for supervising private banks and instead transfer such authority to a new agency under the prime minister.
The NBG thinks that a correct response to the shock would be to focus on economic growth and to funnel increased revenues to a “targeted solution” of social and other issues. It is also necessary to work out ‘an alternative policy’ in order to minimize adverse effects for the population, it recommends.
The NBG calls for a significant reduction in budget expenses as a key component in the “alternative policy” and to utilize current tax mechanisms for this purpose, as was mentioned during consultations between the government and the International Monetary Fund.
NBG last week warned about expected problems of financial and monetary stability by increasing refinancing rate to 5.5 points. The rate will further increase to 6.6 percent until the end of year.
However, the government, which has long been at odds with the NBG, doesn’t plan to foresee these recommendations.
Finance Minister Nodar Khaduri told journalists on Tuesday that he “cannot understand” what the NBG wants.
“Unfortunately, [the NBG letter] is contradictory. For example it says that the government has to increase taxes in order to cover a deficit of balance of payments. To be honest, I don’t understand the leadership of the National Bank which volunteers to make decisions and advises government and parliament to increase taxes,” Khaduri said.
He didn’t comment on the recommendation to reduce expenses.
Georgia’s 2015 state budget, which is slightly over 8 billion laris ($ 3.55 billion), is to be reduced by 140 million laris ($ 62 million).
Parliament is currently considering an adjusted budget draft.