journal N2 2025 

Expanded Summary 

The first part of the paper presents the dynamics of three key parameters—state budget revenues, expenditures, and debt—over the 30-year history (1996–2025) of Georgia’s state budget, which is prepared in the national currency.

 Alongside the dynamics of the main budget parameters in recent years (2015–2025), the paper examines the trends in their share relative to the country’s gross domestic product (GDP) for the corresponding years.

  The revealed reality, particularly the fact that the growth rate of external debt servicing (repayment) surpasses that of all other budgetary parameters, is considered a matter of significant concern.

  While the high rate of external debt servicing can be viewed positively in one respect, its negative aspect is also evident—namely, the undesirable prospect of future increases in budgetary expenditures.

  In parallel with the rapid growth of previously incurred debts by the government, including external debt servicing, the high rate of domestic debt growth is also regarded as a negative trend.

  Based on these trends, the paper highlights the undesirable practice of mobilizing a significant portion of the funds allocated for external debt servicing at the expense of increasing domestic debt.

  Another negative trend during the reporting period is identified as the use of financial resources from the banking sector as the primary source of domestic debt growth. This process reduces the banking sector’s potential to finance the entrepreneurial sector while simultaneously increasing the overall demand for foreign currency in external debt servicing. This, in turn, provokes depreciation of the national currency’s exchange rate and, given the presence of a large volume of imported goods in the country’s consumer market, becomes a factor contributing to rising consumer prices (inflation).

  Considering all of the above and the impact of ongoing global developments (such as the Russia-Ukraine war and other factors), as well as the anticipated challenges in receiving foreign aid—which has long been one of the key sources of revenue for Georgia’s state budget—the necessity of adopting a new approach to the country’s budgetary processes has become a highly relevant issue.

  In light of this, the paper presents a proposal to enhance the mechanism for forming and implementing investment/capital projects financed by the Georgian state budget.

  Alongside a review of the regulatory framework governing investment/capital projects, the study highlights the progressive nature of the selection criteria used in the approval of the 2020 state budget for financing such projects.

Specifically, it emphasizes the effectiveness of evaluating investment/capital projects based on the following criteria:

• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Benefit-Cost Ratio (BCR)
• Cost-Effectiveness Analysis (CEA)

  Considering these factors and ongoing economic trends, the final section of the paper presents a recommendation to reinstate the approach outlined in the "Preliminary Selection Analysis of Investment Projects" document, which was used during the approval of Georgia’s 2020 state budget.

  In this regard, specific recommendations are provided regarding amendments to Government of Georgia Resolution No. 65 of February 16, 2023, on the Approval of the Investment/Capital Project Management Methodology, proposing the implementation of approaches such as:

-Establishing a methodology for comparing the expected price increases of goods/services produced by investment/capital projects with the current market prices of identical products.

 -Defining a rule for comparing the projected increase in operating costs for newly developed facilities—leading to a potential rise in the prices of their goods/services—with the corresponding improvements in the quality of those goods/services .