Georgia Public Expenditure Review : Diagnostics of Public Investment Management System

Abstract

Generating growth and creating jobs
 within a sustainable fiscal framework is Georgia s biggest
 macroeconomic challenge. Although Georgia registered rapid
 growth of 5.7 percent a year during 2010-13, unemployment
 remains high at 15 percent. New growth companies, especially
 in tourism and other service sectors, did not generate
 enough formal or even informal employment. Fiscal policy
 played a crucial role in Georgia s recent growth performance
 with a fiscal stimulus driven post-crisis recovery which
 increased deficit and debt levels followed by fiscal
 consolidation during 2010-12 when recovery took hold. The
 weak execution of the budget in 2013 and policy uncertainty
 were largely responsible for the growth slowdown during the
 year. Tackling the growth and jobs agenda in Georgia will
 require significant investment in human and physical capital
 and the government has a large role to play here. Additional
 spending, where it is needed, should be undertaken within
 the fiscal consolidation agenda of the government, designed
 to help restore the macroeconomic buffers needed to secure
 stability and sustain confidence in the future. The change
 in government in 2012 marked a shift in fiscal policy with
 prioritization of recurrent social expenditures over capital
 spending, thereby, increasing budget rigidity. During
 2012-13, the government raised the benefit levels under the
 targeted social assistance (TSA) and pensions and introduced
 universal health care (UHC). As a result, the fiscal deficit
 is likely to increase from 2.6 percent of gross domestic
 product (GDP) in 2013 to 3.7 percent in 2014. Over the
 medium term, an aging population and the need to improve
 health outcomes and coverage of the poor in social
 assistance programs will keep social expenditures high at
 more than 9 percent of GDP. The share of capital
 expenditures will level off, meanwhile. Such an outcome will
 reduce the government s flexibility in trimming current
 expenditures in the future.