Statistical Data and Real Economy

Nino Arveladze

The world economists do not deny the global price boom. The US inflation indicator has exceeded defined limits.

That of Euro zone that was 2.5% now reaches 4%. Inflation in Russia reaches 12%. The highest inflation indicator among CIS countries is in Tajikistan, followed by Ukraine. However, Armenia is an exception with the low inflation indicator. Yet economic expert Iasha Meskhia supposes that Department for Statistics is Armenia, just like in Georgia, is formally independent and the government presents unreal data. Within difficult global economic environment Georgia particularly needs strong and independent National Bank, with an independent president who will be able to resist government in case of making wrong decision. Expert of economics, Iasha Meskhia estimates National Bank reforms very critically – he considers reforms to be the chase after NBG staff and remarks, that National Bank employs students on the basis of relative ties, instead of hiring experienced personnel. On July 10 magazine ‘Business and Legislation’ arranged a round table discussion with the participation of economic experts on ‘Georgia and Exogenic Factors of Inflation’. Attendants discussed Georgia’s economic challenges and external factors affecting them.
According to the Department for Statistics, average annual inflation indicator today in Georgia reaches 12,5%. However Georgian experts believe annual inflation has climbed to 20%. China and India face high growth of inflation rates. As for Iran, inflation rate was the highest there over 18 years. Japan kept stable positions in this regard over 20 years, although the situation has changed there too. Africa has seen constant rise of inflation rates, but annual inflation rate accelerates sharply in Zimbabwe this year. International Monetary Funs as well as the World Bank declare that sharp price rise in the world economy is a reality. The UN has arranged several conferences regarding inflation issues.
Is Georgia combat-ready against exogenic factors of inflation?
What should be done to decline external factors stimulating inflation?
Georgia imports almost all strategic products. Its export is rather limited. Scrap remains Georgia’s main export. Wheat and fuel prices sharply increase in the world. Still, national Bank confidently states that it will keep 8% inflation rate. Developed countries have re-checked defined inflation target and due to difficult processes in the world, they have increased defined maximum indicators. The means that Georgia’s government plans to use while fighting against external factors supporting inflation growth remains vague.
Experts state that Georgia will face huge economic crisis by the end of autumn. Social, economic and political crisis will expand.
How will Georgia deal with the upcoming economic crisis? Experts believe that they can only express their positions and government should take their statements as well as forecasts into consideration.
Unfortunately, negative forecasts are considered to be opposed mood against government. However, according to expert Elgudja Mekvabishvili, forecasting possible economic crisis is based on the estimation of current situation, therefore statements regarding Georgia’s economic growth do not correspond to the truth. The opinion that the world economic crisis will not affect Georgia negatively is wrong. As economic expert Emzar Jgerenaia remarks, due to current objective reasons the world should have faced supply and demand challenge, but demand on fuel and wheat increases together with price growth. He believes that ongoing world economic processes should be adequately estimated. The above said requires experts’ new approach. Small country’s ability to fight against external factors should be defined. Therefore, working out a flexible policy is necessary. According to Emzar Jgerenaia, there is the problem of estimation in Georgia – the reason of considering transit of 180 million cars to be a car export seems vague while Georgia is not a car exporter. Artificially strengthened national currency becomes one of the challenges for export. It seriously hampers the development of business in Georgia. Experts state that national Bank hasn’t taken any measures to decrease inflation rate. However, the other problem is even more acute – what means did the National Bank gain out of reforms to manage inflation indicators? ‘National Bank of Georgia possesses several means for fighting against inflation ‘– Emzar Jgerenaia says. ‘Reforms are launched so quickly that even good ideas disappear right from the start ‘– he adds.
Emzar Jgerenaia believes, that although the drop of USD rate is the world tendency, it has been declined artificially in Georgia. Even Euro is not stable, the major figure of which sharply changes every day. No one can tell you exactly how Georgian Lari becomes stable. One can not ignore the problem of National Bank, while talking about the regulation of commercial banks. If construction cost growth falls in Georgia, it may lead to a catastrophe, as all commercial banks will face huge problems. The same difficult situation applies to insurance market as well. Two monopoly companies have been formed and on the basis of agreement they have increased prices. They are linked to banks. As a result a bank ensures its own risk with its own capital in it won insurance company. Majority of insiders are related to construction companies. How well is the coming economic crisis analyzed if banks have serious insider problems, inadequacy in capital and significant liquidity problem? Commercial banks, as the source of inflation, are worth noting. Unfortunately we may soon face important challenges.
Investment volume has decreased nearly with 48% over the past 3 months, as Russian and Jewish ‘hot’ capitals leave Georgia. Considering the above mentioned circumstances, Emzar Jgerenaia suggests preparing relevant documentation and hopes international organizations will pay attention to it. The letter will be a type of warning of Georgia’s government.
Despite of National Bank’s limited independence, existing property protection problems and absence of court system in the country, economic expert Gocha Tutberidze has different opinion. According to him, a new representative of Germany’s technical cooperation society visited Georgia and could not find a strategic plan for Georgia’s economic development anywhere. The Georgians explained the reason of it – quick change of ministers of economic development. In fact, ministry of economic development is only obliged to work out the above mentioned plan.
He states that construction price growth will further continue, construction costs are less than sq, meter price. Builders will always invest in business, till this regulation is kept. According to the latest results of the year, issued bank loans on economy amounted to Gel 5 billion. 3.6 billion Gel was loans invested in economy (construction, industry, communications, agriculture etc.). Gocha Tutberidze believes that significant economic growth is seen in every sector. Commercial banks own assets of 8 billion Gels out of which 5 billion Gels are credits. About 2 billion USD are attracted from European and American markets. We can’t call them a ‘hot money’, as they were attracted by banks are invested in Georgia’s economy. As Gocha Tutberidze states:’ inflation rate growth points at economic growth, its is an economic rule. Azerbaijan and Ukraine have higher inflation rates. Armenia has a low inflation indicator, but economic growth remains high. Economic growth requires financing, although interest basis does not enable it within the country. Therefore interest rates are high. Anyway, it can’t count as the basis of economic crisis. Market will regulate everything. The full independence of National Bank is a real challenge. NBG should be totally free to fight against current inflation, to manage it. Otherwise we’ll find ourselves in quite difficult situation. Protection of property rights and the absence of independent court system is a problem too. If all the above challenges are solved, ongoing world difficult economic processes will less affect Georgia’.
While discussion experts have highlighted the problems of careless spending of budgetary sources that is related to the security of each member of the government as well as to so called employment program. The above mentioned is totally unknown to Europe.
Iasha Meskhia states that massive spending of budgetary resources is possible following the negotiations with even one person.
As Nodar Khaduri remarks, something that really matters is the purpose of spending – What are the resources spent on. Weal national bank will not be able to implement strong monetary policy.
‘Our government has gladly informed us about budget proficit. The budget proficit is only possible when revenue exceeds expenditures. Our government has decided to establish a fund, where surplus money would be directed. It borrowed USD 500 million from Europe, that is unclear within beget proficit. On the other hand, the government states that the country rapidly develops and it requires a big amount of money. There is no long term view on the type of budget and on the way of spending resources. The fact that the authority is ruled by one team is shown by the following fact as well: Georgia’s government introduced a draft law to the Parliament according to which surplus monetary sources would be directed to president’s and the government’s fund. Monetary and fiscal policy should be well analyzed in the country. The prime Minister can not make a decision that will be silently implemented by the president of National Bank. The implemented fiscal policy of the country does not correspond to current circumstances. We are mainly oriented on import. Oil and wheat prices increase in the world ( thanks to Ministry of Internal Affairs price is kept stable on salt). Therefore Georgia needs a strong and an independent National Bank. Ministry of Finances introduced a cut budget to the parliament 5 years ago. Today everything happens just the opposite way. The document that will reflect and describe existing situation has not been formed yet. On the other hand, state budget is a kind of oriental point. Healthy conflict of interests should exist between the Ministry of Finance and Ministry of Economic Development. Ministry of Finance owns the whole power nowadays and department of Statistics publishes data according to its indication. As a result, official data shows the well being of the country’ – Nodar Khaduri says.
Economic expert Nodar Javakhishvili considers the moving of Chamber of Control to Kutaisi to be a wrong decision. He believes, it will cause the increase of budget expenditures. Georgia does not have the infrastructure and technologies for enabling distance operation of Chamber of Control. Main offices of the Chambers are situated in capitals in Europe. As expert Nodar Javakhishvili states, budgetary sources are spend in a wrong way. There is no salary policy is the country. Inflation is increasing, agricultural sector is not developing and an average layer of society is disappearing. Nodar Javakhishvili commented on TV program ‘Business Currier’ too. He believes the program gives false information to the viewers and presents Georgia as economically highly developed country with well developed agriculture and other sectors of economy.
Experts have warned the government of Georgia once again to estimate the ongoing world economic processes, to attempt to solve the above mentioned problems and prepare for coming economic crisis that threatens economies of small countries like Georgia.