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Journal number 3 ∘ Nona kavtaradze
Increased public debt and its impact on the Georgian economy

10.36172/EKONOMISTI.2021.XVII.03.NONA.KAVTARADZE

Annotation

The article presents the dynamics and structure of Georgian public debt statistics for 2010 -2020. The main reasons for the increase in foreign debt are identified. The article also discusses the dynamics of key indicators determining debt severity. Based on the complex analysis of these issues, proposals and recommendations have been developed the implementation of which we think will contribute to the improvement of Georgia's public debt management.

Keywords: public debt, external public debt, domestic public debt, debt burden indicators.

Issues related to the growth of public debt and its severity have gained special urgency in the light of the COVID-19 pandemic, the current socio-economic and geopolitical challenges. According to the Law on Public Debt of Georgia, public debt includes domestic and external debts of the country. The separation of domestic and external debt is based on the currency of debt denomination. Accordingly, Georgia's domestic debt includes liabilities denominated in national currency (GEL) and external debt denominated in foreign currency (SDR, USD, EUR, etc.).

The dynamics of the annual public debt of Georgia in 2010 - 2020 clearly indicates its steadily growing trend. The volume of public debt has increased especially in 2019-2020. In 2019 the total public debt increased by 15.9 % (2,828.0 million GEL) compared to the similar period in 2018, and in 2020 it increased by 49.5 % (10,212.0 million GEL) compared to the similar period in 2019. As a result, the amount of public debt in the fiscal year 2020 exceeded the threshold set by the law on the state budget for 2020 by 8.6 % and equaled the historical maximum of 30,835.0 million GEL.

The growth of public debt in 2019 - 2020 was led by the growth of both domestic and external debt (please see Table).

Public debt stock 2010 - 2020 million GEL

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Total public debt

 

6965.4

 

7226.0

 

7845.5

 

8634.0

 

9702.0

 

12489.0

 

14451.0

 

16284.0

 

17795.0

 

20623.0

 

30835.0

External public debt

 

 

5821.2

 

 

6026.1

 

 

6622.3

 

 

7295.9

 

 

7826.7

 

 

10333.7

 

 

11952.2

 

 

13420.8

 

 

14544.9

 

 

16463.5

 

 

24689.7

Domestic public debt

 

1144.2

 

1199.9

 

1223.2

 

1337.8

 

1875.6

 

2155.3

 

2498.7

 

2863.1

 

3250.5

 

4159.2

 

6145.3

source: The Ministry of Finance of Georgia: https://mof.ge/saxelmwifo_valis_statistika 

According to the data presented in the table, the volume of external debt in 2020 increased by 50% (8,226.2 million GEL) compared to the similar period in 2019 and amounted to 80.1% (24,689.7 million GEL) of total public debt. The effect of the devaluation of the national currency (GEL) as well as the taking of new loans contributed almost equally to the growth of foreign debt. Analysis of Georgia's external debt portfolio by currency structure shows that the share of loans denominated in dollars and SDRs (Special Drawing Rights) decreased significantly in 2020, while the share of liabilities denominated in euros increased by 13 percentage points. As a result, in 2020 the liabilities in Euro accounted for 43% of the government external debt portfolio, the Special Drawing Loans accounted for 29%, the USD loans for 25%, and the loans denominated in other currencies at 3%. Although the government external debt portfolio consists of loans in 6 different currencies, it is still vulnerable to currency exchange rate shocks. Interest rate risk is also increasing for the external debt portfolio. In 2020, 49.9 % of government external debt was with a fixed interest rate and 50.1 % with a floating interest rate.

Along with the growth of foreign debt, special attention is paid to the sharp growth trend of the country's domestic debt. In 2020 the volume of Georgia's domestic debt increased by 47.7% (GEL 1,986.1 million) compared to the to the similar period in 2019 and amounted to GEL 6,145.3 million (19.9% of public debt) in absolute terms.

The analysis of public debt sustainability indicators shows that debt burden indicators for example, the Government debt to GDP ratio in 2020 exceeded the 60 percent threshold set by the Law of Georgia on Economic Freedom, and it stood at 60.8 percent.

In order to prevent further growth of public debt, it is important to develop and implement an effective public debt management policy.