For Once, Budget Targets Revised Upwards

PM says the budgetary targets should increase as revenues grow

At a cabinet session on July 26 Georgian Prime Minister Zurab Zhvania said the Georgian government sets a new precedent: “instead of cutting the expenditures the government asks the Parliament to increase budgetary targets. This became possible due to increased revenues.”

The Parliament will consider, and is likely to approve, the amendments to the state budget for 2004 at its special session on August 13.

“The government has succeeded in terms of mobilization of both tax and non-tax revenues. I assure you that the revenues did not increase because of the [bail-out] payments paid by the corrupt officials,” Georgian President Mikheil Saakashvili said.

The amendments to the law on the state budget for 2004 were already endorsed by the Parliamentary committees and factions, and envisage an increase in revenues by GEL 211 million (approximately USD 106 million) and an increase in expenditures by GEL 223 million (approximately USD 112 million).

“The draft amendments to the law on the state budget confirm the government’s ambition. The growth is rather serious, both in revenues and in expenditures,” former Economy Minister MP Lado Papava told Civil Georgia.

According to official reports the increased expenditures will be primarily allocated for the defense and social needs. Out of the increased expenditure of 223 million defense and law-enforcement agencies will receive 98 million Lari (USD 49 million) to be spent on reforms and equipment. The Interior Ministry will receive 60 million Lari, the Defense Ministry 27 million Lari, the Security Ministry 6 million Lari, and the Justice Ministry, the Prosecutor’s Office and the State Security Guard some 2 million Lari each.

34 million Lari (USD 17 million) will be allocated for covering the pension and salary backlog. 4 million Lari will be allocated towards the payment of membership fees in international organizations, as well as for the funding of Georgian embassies abroad.

“The debts of Georgian embassies abroad (GEL 2,2 million) and the UN membership fee (GEL 1,5 million) will be covered completely. So Georgia will avoid losing the voting rights [at the international organizations],” Finance Minister Zurab Noghaideli said.

In addition, GEL 27 million will be invested in the energy sector. Targeted funding is also envisaged for the regions that were recently affected by the floods and landslides. As Zurab Noghaideli said, in order to cover all these expenses, the budget should receive GEL 110 million more than planned by the end of 2004. 

“According to the parameters for past 6 months, the budget was fulfilled by 46%, meaning that the government is close to fulfilling the budget. However, the over-fulfillment of tax revenues has not taken place so far,” Lado Papava said.

The Rightist Opposition, the only opposition faction in the Parliament, has questions regarding the collection of the revenues of the state budget for 2004.

“The Finance Ministry provides no information as to how the various public institutions utilize the funds. We have concerns that there are many flaws in allocating the budget,” Zurab Tkemaladze, one of the leaders of the parliamentary opposition, told Civil Georgia.

“Unfortunately, more attention is paid to how to allocate the budget, while the government bypasses the main issue – how it intends to collect increased tax and non-tax revenues,” disagrees MP Lado Papava.

According to the government, an increase in budgetary targets is based on three major components: appreciation of the national currency towards the US Dollar, privatization and the fulfillment of the treasury obligations.

“We can increase budgetary expenditures due to extra funds from the tax revenues [GEL 84 million], non-tax revenues [GEL 125 million] and revenues from privatization [GEL 61 million],” Prime Minister Zhvania said.

The biggest controversy during the committee hearings was stirred by the planned privatization of the the Tbilisi Aircraft Factory – TbilAviaMsheni (TAM). It is foreseen that the GEL 61 million state debt to Turkmenistan will be covered by the funds received through privatization. TAM is one of the few Georgian industrial establishments that works at its normal capacity and produces quality goods. The company is expected to be privatized by the current managing company, headed by the director-general Pantiko Tordia. The plans to grant the property rights to the managing company, rather than to announce an open competition, has attracted criticism from the parliamentarians and experts.

“We simply demand that the process of privatization of Tbilaviamsheni be fair and transparent,” Papava says. According to Roman Gotsiridze, the chairman of the Parliament Committee for Finance and Budget, “it is possible to attract another investor who will pay more for TAM [than the current managing company].”

The Economy Minister Kakha Bendukidze maintains that the decision to sell TAM to the managing team would be fair. “Since the managing rights to the factory [TAM] have been transferred for a 10-year term, we have no right to sell off its shares. So, we chose the best option – we will sell the enterprise to the person [Pantiko Tordia], who has always honestly met the commitments to the state budget,” Bendukidze told Civil Georgia. According to the Economy Minister, “this [Tbilaviamsheni] is the greatest privatization implemented in Georgia and this will not be the greatest one among future deals.”

The Rightist Opposition, which does not intend to support the budget since “it does not defend the people’s interests,” has protested against a provision which “at the expense of artificially strengthening the national currency, envisions the reduction of the state grants by 25%.”

On May 12, while adopting the state budget for 2004, and later, before approving the new cabinet, Prime Minister Zurab Zhvania said that the government would appeal to the Parliament in July for an increase of the state budget. “The government has kept its promise given two months ago. Now, the most important thing is how this promise will be implemented,” Lado Papava told Civil Georgia.