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National Bank of Georgia Recommends Gov’t to Cut Spending

The National Bank  of Georgia (NBG) recommends  the government to  cut spending.

The central bank has already sent to Parliament its  views and observations about  amendments planned to  the 2015 budget. “Due to the  processes in  the world caused by the dollar strengthening against all the major currencies  and a very difficult geopolitical situation in the region,  the country’s economy is affected by  external  shocks. The situation is aggravated by ongoing processes inside the country, including unfounded allegations against the National Bank’s policy and a possible weakening of the  banking supervision.  It is important to effectively  respond to the shocks and create buffers to  protect from the possible deterioration.

In particular, in the current situation orientation on economic growth and the solution of the targeted problems within the social programs would be the only  correct way. Given that this policy is related to the administrative and other problems, we believe  it necessary to consider an alternative policy that will allow to minimize the damage to the population both in the current year and in the future. This policy provides a significant reduction in public spending mainly due to the operating costs.

In particular, it is necessary to reduce the deficit of the consolidated budget by 48 million, the state budget – by 99 million. The draft presented to  Parliament does not provide for tax changes that would help reduce the current account deficit and consequently, reduce the pressure on the national currency. In addition, attention should be paid to the separation of current and capital expenditures – in particular, the operating costs will rise by 15 million, capital will reduce by 55 million. The consolidated budget envisages an  insignificant reduction in capital expenditures rather than in the current ones.

This year the Parliament has repeatedly expressed dissatisfaction with the depreciation of the national currency, and thus, if the highest legislative body of the country tends to prevent possible further devaluation of the national currency, it must make a number of changes to the draft budget, which at this stage are not included in the draft submitted by the Government, “- the National Bank’s  statement reads.