Expanded Summary

Georgias adverse budget has significantly increased the state external debt since 2008 and is now USD 5,1 billion, while the domestic debt exceeds USD 1 billion. In the current period, the state debt is 43% of GDP, which is within the parameters of the Law on Economic Freedom adopted back in 2011 (60%). Despite the fact that the mentioned law has not been violated, our goal in this article is to evaluate the purpose of spending the state debt caused by the adverse budget and the analysis of the received benefits.

Over the last few years, changes in liabilities make up to 10% of budget payments. The financial resources raised from donors are mainly focused on infrastructural projects.

Nowadays, hindering factors for small and medium businesses are mostly expensive credits and non-competitive markets. This work discusses the necessity of market diversification, especially on the financial market.

The article emphasizes that the state debt contributes to economic growth, though a negative background in the development of the country is still can be observed. Over the last few years, the economy of Georgia has been growing by 4-5%. Economic development can be assessed by the following indicators: low inequality, annual increase of GDP per capita, balanced or positive trade balance, low unemployment rate, timely conversion of national savings into investment. In terms of the mentioned indicators, there are acute problems in Georgia: the level of inequality according to Gini coefficient is 0.4. Negative trade balance in recent years (commodity trading) exceeds USD 5 billion. More than US dollars. Unemployment rate is 13,9%. Savings will be converted into ½ investments, whereas the rest - to the mortgage and consumer loans, which is not really the best indicator. The GDP per capita per annum is increasing annually, and by 2017 it was GEL 10 204 (although it is an average indicator and the level of inequality should be considered). Of course the state debt is not the only factor of economic development, but it is necessary to use it efficiently, so that the final result should be the support of the real sector.

In recent years infrastructure has been significantly improved in the country, but the level of national production is still low, which is indicated by the fact that economic growth significantly depends on the increase of the state budget. In this case, the economy is growing with the help of debt and not so much with the help of its immanent structural shifts. For instance, in 2017 the accretion of the state budget, comparing to the previous year, was higher than the real gross domestic product. In 2017 inflation was defined at 6,7%.

Since the annual budget is necessary to ensure that economic growth does not change, the country is forced to plan budget deficit every year since the overall balance of the budget is negative. The main reason for the adverse budget is the growth of non-financial assets.

Implementation of energy projects and improving infrastructure is not enough. The trends of the recent years in export-import indicators have clearly confirmed it. Nevertheless, the received loans are still used in this direction. In our opinion, the state forced debt is better to be spent on increasing the country's export potential more deliberately. In this regard, due to the experience of the past years, it is necessary to apply finances not only to regulate infrastructure, but also the state itself should take particular risks, which can be expressed in the purchase of industrial purpose goods for entrepreneurs, which will serve as a prerequisite for reducing additional financial costs and risks for private sector.

Although the state debt to the gross domestic product is not too high (43%) and many other developed countries have a much harder situation in this respect (e.g., Japan - 253%, USA -  105%), however, the economic growth rate along with sharp growth effect should be taken into consideration on the one hand, and structurally development of economics on the other hand. That is why, mechanically, we do not think it is wrong to compare the burden of state debt in different countries. Consequently, the state debt pressure of each country should be assessed as a result of deep economic analysis. The mentioned percentage indicator for Georgia is, in our view, already warning.