Public Expenditures in Georgia: Strategic Issues and Reform Agenda
To keep government finances on a sustainable path along with sustainable growth and job creation, this public expenditure review offers reform options in the areas of macro-fiscal policy, social protection and health, education, the state owned enterprise sector and inter-governmental fiscal relations.
- Generating growth and creating jobs within a sustainable fiscal framework is Georgia’s biggest macroeconomic challenge.
- The change in government in 2012 marked a shift in fiscal policy with prioritization of recurrent social expenditures over capital spending.
- Spending on pensions has been the largest component of social expenditures putting pressure on the government’s fiscal position.
- As a result of introducing the universal health care (UHC) in February 2014, health spending is projected to double in nominal terms.
- Public finances in Georgia are likely to come under pressure over the short- to medium-term in the context of large increase in recurrent expenditures and the limited scope to raise revenues.
- The prospect of reduced capital expenditures going forward has increased the urgency of instituting a sound public investment management system.
- Government spending on education in Georgia is low – compared to countries with similar per-capita incomes and relative to both the shortage of human capital and the country’s ambitions.
- The per-capita financing system in the education sector is transparent and leads to an efficient allocation of resources.
- An efficient distribution of resources cannot offset substantial sector inefficiencies, such as poor teacher quality, and excess number of teachers from the pre-school through the secondary level.
- The vocational education and training program has been completely overhauled but only a fourth of the VET graduates are able to find jobs in their mainstream education disciplines.
State Owned Enterprises
- According to business survey statistics, the state owned enterprise sector in Georgia is relatively small and its contribution to GDP amounted to 7 percent in 2012 and accounted for about 10 percent of total formal employment.
- The five largest SOEs in Georgia comprise 80-90 percent of the total assets of SOEs and are grouped under the extra budgetary Partnership Fund. Establishing an inventory of SOEs to get a consolidated picture of fiscal position is essential.
- The government undertakes significant quasi-fiscal operations through these large SOEs, and mainstreaming them into the budget will increase the transparency and accountability
Intergovernmental Fiscal Relations
- The current administrative structure in Georgia, with just one layer of sub-national government, is in line with international practices.
- Despite limited expenditure responsibilities, SNG spending in Georgia is reaching levels similar to those in countries where subnational governments are responsible for more resource intensive services.
- The low level of revenue autonomy at the local level acts as a disincentive for effective fiscal management.
Last Updated: Aug 11, 2014