What will IMF tell us or what will we tell IMF or people?

Bondo Jgenti

In 2004, the eighth year of budget reforms, we were expected to have an ambitious budget – such estimation belongs not only to Georgian experts, but also to IMF.

Incidentally, IMF has constantly advised us that we should have less ambitious and more modest budget plans. Now it says that the presented tax revenues plan corresponds neither to the real economic potential nor to the active measures initiated by fiscal and law enforcement agencies. This positive fact was expected to have had an effect on budget-2004.
This year, as well as in 2001 and 2002 we might have had a budget increased by more than 15%. As it was in previous yeas, financiers and economists now say that there were real potentials for it. Budget should, as a rule, correspond to the indicative plan. The latter, however, is based on the Poverty Reduction Programme. Thus, when a budget does not correspond to an indicative plan, implementation of Poverty Reduction Programme is put into doubt. Yet, there are also positive effects apart from the drawback of budget incompatibility with the indicative plan: if the two documents coincided, we would think that the country and its economy would not have more prospects. However, there are real growth and development prospects in Georgian economy. In any case, experts admit it.
The main indicator of economic development is growth rate and GDP volume. According to official data, economic growth rate was about 8,6% in the first quarter of the year. In 6 months of 2003, of 12 countries of CIS area Georgia held the fourth place in economic growth rates leaving behind such countries as Russia, Ukraine, Byelorussia, Kirgizia and Moldova and exceeding the CIS average indicator by 4 points. Given the present problems and energy crisis as well as political and social factors, GDP growth rate will not drop less than 6%. In short, even most sceptical experts estimate this year as a turning point. In this background, budget 2004 should have been richer in reality.
According to the Y2004 budget project, revenues are set at 1315800,0 GEL, 108440 GEL up from 2003. Tax revenues are 156200 GEL up from the previous year, i.e. set at 1111000,0 GEL or at 16,2% exceeding the expected parameters of 2003 (15,8%) by only 0,4%. This kind of growth was planned in previous years, too. From the viewpoint of tax revenues, planning of such indicators does not entail any serious results of tax administration. Besides, such results can also be achieved through economic growth and inflation rates. The same concerns customs dues. Revenues from customs fees are planned by the Y2004 budget at 76 000 GEL, 7 800 GEL more than this year. VAT is more than 65 000 GEL, i.e. this tax is planned at the level of 523300,0 GEL. Income tax is 1900 GEL (22700,0) down on the previous year while profit tax is down 800 GEL (13600,0 GEL). As far as non-tax dues are concerned, mobilisation of 204800,0 GEL is planned with it exceeding the Y2003 indicator by 16540. It is noteworthy that from the viewpoint of non-tax revenues, the budget plan provides for privatisation incomes. 41,5 million GEL were expected to come to the budget from privatisation. Such plan could be implemented provided the rest of Georgia was privatised. Incidentally, IMF required adjustment in budget plan from this point of view. Of 41,5 millions about 20 millions were to come to budget from the privatisation of energy objects (the matter concerned small five water-plants), which proved to be impracticable. Mobilisation of the rest millions in the budget is not yet under threat. The planning of privatisation funds should be revised. It is an inexhaustible process. The IMF mission headed by Paolo Neokhausa will visit Georgia in the end of October. The objective of the mission is to study nine months’ results of the Y2003 budget and “revise” predictive indicator project and implementation of IMF recommendations. The fiscal budget gap might cause discontent of IMF. Recommendations of IMF (tax reduction and mobilisation income package of 2003; the Y2004 budget project; decrease of smuggling; end of treasury reform; increased recovery of sums from the consumed energy; making transparent calendar for issuing treasury bonds; preparation of trade liberalisation programme; entrance of international audit in Georgian Railway, Poti port and Madeneuli; preparation of full information on the current liability before creditors – Paris Club members) should be fulfilled by the government. The greater part has already been fully or partly implemented.