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Bloomberg: Georgian Growth Above Target Will Aid Ailing Lari, Minister Says

Georgian Finance Minister Dimitri Kumsishvili said economic growth may exceed 5 percent this year thanks to tax cuts and planned infrastructure spending, helping to ease pressure on the nation’s currency.

There are “realistic” prospects of beating the government’s 2017 target of 4 percent growth and meeting the World Bank’s forecast of 5.2 percent, Kumsishvili said in an interview in the capital, Tbilisi, on Monday. An additional 600 million lari (about $224 million) in infrastructure spending, a free-trade deal with China and the removal of taxes on reinvested company profits will all help boost the economy, he said.

Strengthening the economy “is the answer for the lari rate, this is the main task” for the government, said Kumsishvili, 42, who was appointed in November after the ruling Georgian Dream party won parliamentary elections. The currency has declined 21 percent since June, the worst performer among former Soviet republics, and is trading at about 2.69 per dollar after sinking to a record-low 2.82 on December 21.

Georgia is fighting to overcome the economic impact of Russia’s longest recession in two decades and the weakening of the Turkish lira amid political turmoil following July’s failed coup attempt. Russia and Turkey are the Caucasus nation’s neighbors and top two trading partners. Georgian Prime Minister Giorgi Kvirikashvili said in an interview in May that he expects a decade of growth averaging 7 percent to 8 percent a year to 2026 as improvements are completed to major transport links to Turkey, Russia, Azerbaijan and Armenia.

The economy expanded by 2.3 percent in the third quarter, according to the state statistical service, Geostat, which lowered Georgia’s 2016 growth rate to 2.7 percent from 3 percent. The World Bank forecast this month that Georgia’s gross domestic product will increase by 5.3 percent in 2018 and 5 percent in 2019.

China Trade

Increased excise levies on tobacco, cars and oil products as well as taxes on gambling will cover budget revenue lost by ending taxation of profit that companies reinvest in their businesses from Jan. 1, Kumsishvili said. The government will continue working to narrow the budget deficit from 4 percent last year, while shifting the balance of spending away from current needs toward infrastructure investment, he said.

The free-trade agreement that takes effect in June will create opportunities to export more food products to China, which now buys 5 million bottles of Georgian wine annually, Kumsishvili said. Georgia is considering a visa-free regime for Chinese tourist groups to boost visitor numbers, he said.

A program begun by the government and the central bank this month to allow borrowers to convert dollar-denominated loans into lari will make Georgia “less dependent on foreign currency” within three to five years, the minister said. “It’s a sign of a strong and developed country to respect the local currency,” he said.

Central bank Governor Koba Gvenetadze said in an interview soon after he took office last March that clashes between the government and his predecessor over the lari’s exchange rate had dented public trust in the regulator. Ministers repeatedly criticized the bank for not spending reserves to support the currency as it declined 21 percent in 2015, a policy that Gvenetadze defended.

Source: Bloomberg