We had To Deviate from One Extreme to Another – Inflation Rise Is Expected in Georgia

Tamar Abashmadze

Inflation is severe and hardly curable disease in modern economy. No one county is protected form this –no developing, neither the counties where economy of state socialism is kept.

2006 Georgia’s economic trend was impressive. Yearly increase of GDP approximately included 10 %, investment inflow grow.
But energy prices climbed up, causing price rising on food.
Inflation level faced 14.5 % in 2006, but led to decline after, and hovers about 10 %. Besides, inflation hit is expected in Georgia.
Number of employee and hired staffers is so small in economically active population, that salary rise is not able extremely change general condition.
Shadow economy quickly reducing what should be considered as positive event and especially its half diminishing during recent 3-4 years period.
Reduction with non -formal measures with other positive points means currencies` incomes declining. Official, legal incomes increase from the one side and incomes from non –formal sectors reduce, form the other. Totally, we gain in quality, but are not able to gain correspondence profit yet.
Reviewing recent dates, nominal incomes just on one sort domestic economy 27 % increased, expanses 16 % increased, while inflation 25 % growth.
After legal sources of incomes increased, people talk about their profits more openly. So, this improvement should be considered more as statistical issue, then the economic one.
Statistical dates improved, but nominal dates remain unknown. Its growth is unimportant relatively to incomes growth. But in the case of separating everything into generation rates, condition will be unordinary. One sort of domestic economy incomes faced approximately 2,3 % raise and expanses declined with 7, 5 % during last three years period, so wealth amount used by interior economy reduced in gross domestic product. There are three ways of wealth using –individual, collective and general state form.
GDP faced nominal 60- 61 % growth during recent four years period, but real 27 % growth.
While comparing 2003 –2006 years GDP faced nominal increase but most amount of it was expended for institutional unites improving issues –state governance, defense, security and ect; But generation of incomes of family use is very slow.
We wanted to deviate from one extreme to another.
Repaired roads and lighted streets innovations are certainly good for needy population, but its moving into family use is necessary. What mentions opportunity of electricity turning on any time, but everything depends on our pockets. Every family should have suitable domestic economic opportunities.
Georgia suffers two types on inflation for today: expanses and demand inflation. There is views difference concerning expanses inflation. According to the National Bank of Georgia (NBG) expanses inflation is effected by exegetic factors, portion of which hovers over 70 -80 %.
In the case of prices rising on natural gas we `ll have to pay 220 000 million dollars more then we used to in 2006 for gas supplement. It means population and economic unites will have to pay more for imported natural gas. So, that provides background for production and family expanses price rising. That is exegetic factor followed with circle reaction –price rising on power, transport and …. We are not able just avoid the issue.
But according to Georgia ` s Parliament Finance – Budgetary Committee specialist, Ioseb Archvadze, exegetic effect on expanses inflation may consist just 1, 3 %, left others are net environment and factors causes. But there are also interior factors.
Average yearly inflation keeps 9, 2 % level. It `s too high statement and meaning inflation rate coming the same level to GDP rate. While neighbor Armenia faces high GDP rate and inflation rate just 2, 9 %. So, GDP increase and inflation rates nearly equal, but there is not difference in our country.
Azerbaijan goes out from such sort of measure category and moves to the other – most heavy one. Azerbaijan runs out Georgia with all sorts of indicators for today.
Monetary aggregates are also effecting on inflation. IMF recommended strict monetary policy providing, surplus money taking out from currency releasing separate auctions and certificates. This prescript may turn out successful one, but universal result approaching is not able by just one type of prescription. Complex arrangements providing and the authority effort is obligatory. Local entrepreneurs’ interests increasing, taxpaying regime providing is among the issue.
“How we schedule IMF recommendation keeping till the end of the year on one point level, when communal transport price rising (from July 1) will bring 4,5 % inflation, being followed with circle reaction” –Ioseb Archvadze said.
Because of national currency solid, consumer commodity inflation rate included 7, 1 % in May of the current year comparing with the same month of the recent year. When middle and long term commodity deflation took place prices were 3- 4 % reduced. Why? Because Georgia ` s market is basically full with imported commodity and currency solid maintains its prices not increase, but reduction. But exegetic strengthening may bring serious damage to local entrepreneurs while export sign occupying or keeping.
The authority should care not just about national currency strengthening and inflation keeping on one point number, but employment generation and employment internal structure improving.
At least middle salaries establishment for each is necessary for the issue of inflation not sharply effect on the population.
Middle salary includes 190 lari in Georgia. Which is 70 lari more then in 2003.
Salary in Georgia left its function of only revenue source; it has not just function of basic revenue source. Less then third of gross revenues come on salary portion, left other is production revenues, transparent, property elements realization, agriculture incomes and ect;
There are 1 200 000 economics in Georgia, but economically active population number includes 1 700 000.
Fifty hired employees come on every 100 family, what mentions no one economic active member on of each second family having salary or salary like revenue.
Recent years sates faced approximately 1/5 times price rising on food (33%) relatively with inflation level and its 24, 9 % increase.
Most part of low profitable population expenses all revenues on food purchasing and the money is not enough for something other. So, prices on food hit, and official statistical dates silence about the issue.
“We are observing inflation not to become double number, but forget about people` s condition. Real level of expanses and needy level increases, “Ioseb Archvadze said.
We are proud to be one of leader country with our indicator level. For instance, Georgia is leader reformer country among two others and 22-th country where “Playboy” has been released, but about 120th economic developed country.
“Playboy” releasing and reforms providing is certainly good, but all these should be converted for population ` s prosperity and economy development.
Boost investitions is good. It creates conditions, but that is not enough condition for population` s solid prosperity and no way back.
Maintain of small and middle business is obligatory for population` s prosperity, as for example it runs in EU.
Portion of small and middle business as EU countries includes 62 % of whole turnover and producing. The number includes just 25 % in Georgia. When large business portion number includes at least 75 % in Georgia and 38 % at EU member countries.
Indeed, jobs are created while small and middle business huge maintain.
Large corporations, ordered but the authorities of developed market economy countries, are basically collaborating by sub – agreements including small and middle size enterprises, where too many vacancies are created.