Facing criticism over economic slowdown and missing tax revenue target for this year with UNM lawmakers predicting spending cuts, Finance Minister Nodar Khaduri said during debates in the Parliament on November 13: “Forget the word ‘sequestration’ and throw it away.”

“There will be no sequestration whatsoever; the budget has resources to meet all of its liabilities,” he said.

Georgia’s tax revenue will fall short of the 2013 target as economic growth is far below forecasted 6%; annual growth in the first nine months was 1.7%. Data of the first nine months also show that the government is spending less than projected.

According to IMF, Georgia’s economic slowdown in 2013 is due to weak investor confidence reflecting political and policy uncertainties and shortfalls in government spending, especially in capital expenditures.

When Finance Minister Nodar Khaduri appeared before lawmakers on November 13 to present draft of 2014 state budget, he was asked by UNM MPs whether he was ready to face political responsibility for a failure to meet revenue target. UNM lawmaker Giorgi Gabashvili criticized Khaduri for not heeding to the opposition’s multiple warnings throughout this year about negative economic trends, which, he said, resulted into missing of budgetary targets; he said it will force the government “to significantly cut budgetary parameters.”

“We have assumed responsibility in last year’s elections and did it once again during the presidential election this year and we are not shunning away from our responsibility,” Khaduri responded.

“Regrettably our forecasts have not come true,” he said referring to targeted 6% economic growth and blamed it primarily on, as he put it, “a very aggressive” attitude of the opposition and outgoing president Saakashvili.

“Economy is now getting out of shock in which you left it,” he told UNM lawmakers and added that businesses were “terrorized when you were in government” and called on UNM to be “brave enough to at least apologize before those businessmen.”

When told by UNM lawmakers that more taxes were collected in the first ten months of last year than in the same period of 2013, Khaduri responded that GEL 100 million was collected last year through “extortion” by the previous authorities.

“That GEL 100 million was blood that you sucked out of businesses. We don’t suck blood out of businesses,” he told UNM MPs.

UNM lawmaker, Giorgi Tevdoradze, told the Finance Minister: “Driving economy out of shock by looking only in the past and by searching for arguments in the mistakes of predecessors will not work and bring [the economy] into lethargy with fatal outcome.”

Finance Minister Khaduri acknowledged that there “might be certain problems in terms of tax revenues.”

“But we will still get more money into the budget than we will be able to spend it,” he said. “There might be some problems in terms of revenues, but there will be no problem in funding of budgetary expenditures; even now there is over half a billion Lari available freely in the state budget.”
 
He said that deficit was initially projected to be 2.9%, but in fact “now we expect it will be 2%.”

Khaduri said that shortfall in spending “is not good” either, but added that it also was the previous authorities’ fault.

He said that current authorities had to suspend number of state-funded infrastructure projects because public tenders, through which service providers were contracted, represented “corrupt deals”. He said holding of new tenders became needed that caused delays and underspending.

“GEL 800 million was not spent because we suspended those corrupt tenders,” Khaduri said.

“The Georgian economy is in the process of recovery and I am absolutely sure that the budget will face no problems,” he said.

Khaduri said that economic slowdown was largely due to contraction in construction sector and in particular in the state-funded segment of construction sector.

The draft of 2014 state budget, which was presented by the Finance Minister before lawmakers on November 13, is actually the same draft without any changes, which was tabled by the government in early October. Khaduri said that although there were remarks by lawmakers to the draft, no changes were introduced because after the November 17 inauguration of president-elect, the government with new PM will be in place and amended draft will be submitted by the cabinet led by new PM. Khaduri, however, also suggested that he expects no major changes in the existing draft. He also cited need to hold consultations with the IMF as one more reason behind presenting unchanged draft.

The draft of 2014 state budget targets GEL 6.95 billion in tax revenues, up by GEL 30 million from this year’s target and economic growth forecast is set at 5%.

“Even if real GDP growth is 5% next year as it's projected, targeted amount of revenues anyway seems to be over-optimistic,” Archil Mestvirishvili, vice-president of the Georgian central bank, told lawmakers on November 13.