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Journal number 4 ∘ Marina Tabatadze
Global and National Standards of Economic Sustainability

DOI: 10.36172/EKONOMISTI.2022.XVIII.04.Tabatadze

Expanded Summary

Modern integration processes aggravated economic crises, which led to the development of anti-crisis policies and to the question of governments’ optimal functioning in struggling environments. Global systems have made the future of countries significantly dependent on number of points: their effective positioning in the world economy, their capacity to adapt to modern integration processes, to correctly forecast the results of cyclical economic development, and to effectively respond to macroeconomic imbalances. The present paper discusses some modern strategies for successfully managing integration processes and national standards for crisis regulation and post-crisis rehabilitation.

The work analyses the priority management standards of modern world economic processes and the strategies for economic stabilization. It examines the issues of correct coordination of global economic systems in a crisis environment and optimal distribution of functions between governmental levels. The conceptual approaches to the political and economic management systems of the modern economy are discussed in the paper, which lays a foundation for analysing national anti-crisis reforms and their compliance with global standards, anti-crisis management of the economy and post-reform functioning optimization mechanisms. The forecasts of the national economy are presented on the bases of international and EU expert assessments and the opinion of scientific researchers and ranking organizations.

Key words: concept of state governance; forecasting economic fluctuations; political and economic stabilization; state regulation of the crisis; global and national anti-crisis strategies.

One of the central economic functions of the state is the development of anti-crisis policy and ensuring government's involvement in the post-crisis rehabilitation process, which should ensure the balance of public reproduction and the harmonious functioning of the system.

In the modern economic world, the unipolar system of management gradually loses its power to the benefit of decentralized relations and, as a result, the elements of economic nationalism are formed (Tabatadze, 2020). The current crisis due to the world pandemic put light on the ongoing process of deglobalization, which has further emphasized the unstable nature of integrated economic systems. Along with the dependence of countries on the world markets, the importance of their autonomous functioning and neighbourhood policy and external shocks has increased, which rises the role of the political-economic activity of the government and the importance of the functioning of the centralized management system. The main feature of the economy is the activation of centralized management elements at the level of the national economy against the background of the decentralization of the world unified management system.

Crisis management uses different standards. Developed countries, due to their strong economic potential, are relatively resistant to changes in world markets. On the other hand, developing countries, mainly due to lack of resources, depend on stronger economies and are essentially involved in world systems as users. The stability of their economy is very sensitive to external shocks and global transformation processes. This sets new standards for inter-state relations and offers completely different forms of cooperation to society. "Crisis regulation is a form of governance activity of a transnational nature, which is influenced by the general trends and regularities of world development." [Tabatadze, 2017, p. 480]. This global concept of crisis management turned out to be inappropriate during the pandemic crisis, which showed unprecedented scale of economic shock and unpredictability. Therefore, it was not possible to develop a unified scenario to manage this crisis.

The management strategy of governments during the crisis, mainly serves to slow down the economic decline and reduce its negative social consequences instead of ensuring economic growth. The modern process of world economic development is non-standard and difficult to regulate as it hardly obeys the generally recognized principles of economic development. The complex and extraordinary nature of the global pandemic caused the unpredictability of the economy and made the effects of reforms difficult to calculate, which, along with the anti-crisis regulatory activity of the government, required financial support and appropriate recommendations from world institutions. A standard platform for crisis management is based on the formation of the optimal exchange rate management regime and on the rationalization of fiscal policy. Along with economic aspects, the biggest burden of ensuring socio-political stability falls on the country's budgetary system. During pandemic and post-pandemic crisis, a correct formation of budget structure and deficit management was the most important lever for governments.

The budget system of Georgia is federal in nature and indicates the hierarchical independence of each level of the budget, both in terms of autonomous planning of the revenue base and the expenditure. According to the World Bank's seven criteria for assessing the quality of fiscal decentralization, Georgia has an independent budgeting system of average quality. This indicator was significantly improved by the last budget reform, which affected the calculation of the equalization transfer according to VAT. A high degree of centralization of the system is indicated by the fact that according to the general revenue indicator, the degree of decentralization is 10%, and according to tax revenues it is 33%. This ration highlights the fact that a large share of income of local budgets depends on transfers and grants. The new revenue distribution model, which involves determining the equalization transfer according to VAT, diversifies and stabilizes the source of revenue, which, according to the "European Charter", is an important condition for fiscal decentralization and obliges municipalities to find alternative sources of revenue.

According to the Association Agreement with the European Union, the legal framework of Georgia is based on European legal standards and legal norms. One of the main challenges is to harmonize the legal framework of the budget system management with European standards and to introduce unified governance mechanisms. The parameters of the fiscal system of Georgia derive from the "Fiscal rule of the European Union". The main requirements of this document are the following: control of the budget deficit, increase in the efficiency of spending of funds, reduction of the cyclicality of the fiscal policy and prevention of its unsustainability. According to the IMF, the fiscal system of Georgia is stable, and its indices do not exceed the threshold level of sustainability (IFM, 2021). IMF has also identified challenges in the fiscal sector, the effective management of which significantly depends on the rehabilitation of the country's economy and bringing its individual components into line with international standards. These are: assessment of long-term fiscal sustainability; effective management of state budget reserve funds; Financial management of state enterprises.

At the initial stage, the pandemic caused a decline in the economy of Georgia and further aggravated the existing problems, such as exchange rate of GEL, inflation, investments, unemployment and public debt. The largest decrease was observed in the hotel and restaurant sector - 32%, the transport and storage sectors - 20%, and the services of the entertainment-leisure - 15%. In 2020, the budget of Georgia lost 16 million GEL daily under the conditions of lockdown, which made a total of 1 billion GEL in 2020. The economic decline was 6.1%, however, according to experts, if the government had not implemented the lockdown policy, the overall decline would have been 8%.

The pandemic crisis made significant changes in the budget of Georgia and required its substantial adjustment. Total expenses in 2021 represented 25% of the GDP. 2 billion GEL was spent from the state budget on the anti-crisis program. The spending went to two priority directions: financing of state social projects (grant of allowances, financing of population social protection projects, increase of teachers' salaries, indexation of pensions) and business support (430 million GEL). The increase in state spending increased the budget deficit during the pandemic crisis from 2% to 9%, and it is expected to restore this parameter to the pre-crisis level by 2024.

Correct fiscal policy significantly reduced the destabilizing scale and the degree of destruction caused by the pandemic. Some of the fiscal policies had particularly positive impact, such as the state programs of entrepreneurial support, transfers to domestic farms and social assistance for persons with limited liquid funds. In the process of coming out of the crisis, developed countries were able to fully provide large-scale fiscal support to households. The Central Bank strengthened this process by expanding asset purchases, increasing credit financing, and reducing interest rates.

Along with budgetary actions, the World financial institutions and strategic partners of Georgia played a decisive role in the management process. International financial institutions made a significant contribution to maintaining the stability of the economy and developing the financial sector. In 2020, they financed Georgian companies with 700 million US dollars, out of which a significant part - 600 million US dollars - represented the financing of Georgian banks. The priority was given to encouraging investment in energy efficiency, development of municipal infrastructure, professional education and training (in this order). Important investment projects were implemented by EBRD, - 31 million euros, KfW, - 20 million euros, ADB, - 70 million US dollars. In 2020 the European Union allocated 1.5 billion euros to Georgia to fight the pandemic, of which 2/3 was a grant and 1/3 - a favorable credit. Its total aid amounted to 1.9 billion euros this year (calculated per capita, this was the highest figure in the world), out of this amount, 1 billion GEL was allocated to ensure macroeconomic adjustment. Currently, the European Union implements 200 current projects with a budget of 500 million euros in Georgia. For the years 2021-2027, a new strategic document for relations with the European Union will be developed - "multi-year indicative program - MTP", which considers the wider scope of this cooperation and new partnership directions. [European Parliament, 2020]

In the conditions of a significant increase in public debt caused by the crisis, its effective management is extremely important for underdeveloped countries, as debt substantially increases fiscal pressure and hinders economic growth. Considering this factor, a new platform for the restructuring of foreign debt, G-20, was developed with the joint agreement of international financial institutions. This framework agreement establishes significantly relaxed standards for the restructuring of debt agreements and the servicing of obligations in the field of international financial cooperation, which in the medium term will have a positive impact on the budget structure of the countries and the rates of economic growth.

During the global pandemic crisis, in the process of developing an anti-crisis strategy, new trends of government involvement in crisis management were highlighted. Special attention was paid to the state policy of economic support. The government of Georgia built its support strategy on three priorities: promotion of local production, determination of correct sectoral priorities, provision of energy independence. This led to an unprecedented scale of economic growth in Georgia, which amounted upto 10.6% in 2021 (the highest in the region and the second in Europe. According to future forecasts, Georgia will have the best economic growth rate in Europe this year (10.2%), according to IMF calculations. Yes, even in the medium term (2021-2025) the highest growth rate in Europe will be in Georgia again -34.5%, [International Monetary Fund, 2021]. European Council Economic Commissioner Paolo Gentiloni believes that "the outlook for the next two years is weak but stable Economic growth, which is a positive development for the creation and maintenance of jobs, but political tensions remain, reducing the prospects of the manufacturing sector" [Gentiloni, 2020)].

In the conditions of globalization, the demand for foreign capital increases and it becomes the most important factor of economic growth. As a result, a competition between the capital receiving countries also increases. In such conditions it becomes more and more difficult to interest investors with only tax benefits. More efficient, large-scale offers are necessary for them: political and economic stability, attractive business environment, effective operation of environmental and insurance mechanisms, more flexibility and openness to make decisions in relation to a specific portfolio. Ranking company Fitch has left Georgia's previous sovereign credit rating at BB level, amid the deterioration of the macroeconomic situation of most of the world's countries. Fitch's position is an important message for investors about the stability of the economic situation and attractive business environment in Georgia.


The fundamental principle of the global anti-crisis strategy lays on the following criteria: political stability, mutual cooperation between countries, coordination of economic rehabilitation programs based on free market principles, and concern for general well-being. In addition, new standards of inter-state cooperation require the implementation of stabilization programs at each country level, taking into account the structure of the individual country's economy, the type of crisis and the severity of the shock. The main priority of Georgia's economic policy is mainly the transition to import-substituting industries and energy-saving technologies, which places new demands on both, qualification of the workforce and management.

In the current difficult political and economic conditions, different kinds of problems appear in front of developing countries, which pushes them to pursue an independent policy and develop their own socio-economic strategy. The goal of Georgia is to become a safe and attractive country for the world, to successfully fulfil the role of a regional leader and to implement liberal administration of the economy, which is one of the important prerequisites for European integration. By doing so, the function of our country should be gradually changed from a transport corridor into a logistics hub of the region.


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