Home / Economy / LARI GOES DOWN – WHO IS RESPONSIBLE?!

LARI GOES DOWN – WHO IS RESPONSIBLE?!

Georgian national currency continues to depreciate – a process began in mid-November and continues today – the rate of the national currency against the US dollar was set at 1.89.

In particular, in January-October 2014 Georgia’s foreign trade turnover amounted to  USD 9.4 billion, which is 10% more than in the same period of 2013 – exports accounted for USD 2.4 billion (a  5% growth ), the import – 7 billion (+ 11%).

 A volume of investments has also reduced – for two quarters of 2014 it amounted to USD 415, 8 million, which is 10% less than in the same period of 2013.

During 10 months of 2014, remittances from abroad amounted to USD 1.2 billion, which is 1, 9% more than in the same period of 2013.

Apart from that, he notes that the strengthening of the USD rate   led to a weakening of the national currencies of Georgia’s trading partners – Russia, Ukraine, Turkey, which led to a rise in price of GEL against the currencies of these countries, which to some extent reduced the competitiveness of the country. Minister of Economy and Sustainable Development Giorgi Kvirikashvili has called on citizens not to panic with regard to the GEL exchange rate.

 According to Kvirikashvili, there is no reason for panic with regard to the GEL exchange rate.

About GEL depreciation made first comment former PM Bidzina Ivanishvili. He addressed a journalist who asked the question and noted that there was nothing to panic about.

 “A lot of statements have been made during this week. There is nothing to panic about, the economy is solid, exchange rate varies, the US dollar is getting stronger in many countries, as well as in Georgia. Finance Minister and others have made statements. Everything is normal, the government is working well “, – said Mr. Ivanishvili.

But it is fact that LARI goes down and someone should be responsible for the process.

 

Levan Kalandadze

Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative

The GEL exchange rate is driven by many factors and no concrete state office determines this issue. The national ccurrency devaluation is a logical result of the economic policy the country is carrying out throughout the year. Several important factors affect the GEL exchange rate: the balance between the volumes of USD and GEL, that is how much USD inflows and outflows from the country. This balance has been greatly violated by the end of this year because of several circumstances. The GEL exchange rate was negatively influenced by external factors – foreign direct investments (FDD) as a main source of USD inflows to Georgia have significantly shrunk.

Another factor is driven by contraction in foreign direct transfers from abroad, especially from the Russian Federation amid the Russia-Ukraine conflict.

The third factor is related to the balance between exports and imports. We often welcome exports growth and this is very good. Certainly, exports growth is very good tendency, but the problem arises when the imports growth rate turns out higher compared to the exports growth rate. As a result of the high ratio of imports in the balance of exports and imports, the volume of USD outflows surpasses USD inflows during the imports and exports operations.   Georgia is imports-oriented country with a 70% ratio of imports in the consumer basket and this one of the main factors stimulating growth in demand for USD in Georgia. As result, the situation gets aggravated amid contraction in USD inflows.

Moreover, the so-called spending policy is also very important in the country. As reported, we have breached the budget in both revenues and expenditures parts throughout the year. The state budget suffers from a serious lack of credits as one of the sources of foreign currency inflows. These gaps have brought logical results and in November to December 2014 the Finance Ministry had to spend 3 billion GEL, while a monthly plan for the spending part constitutes about 700 million GEL. This signifies the Finance Ministry had to inject additional 1.6 billion GEL in the turnover. Today, this signifies the Finance Ministry has to spend 1.5 billion GEL. Consequently, we have to spend twice more, that is we have to supply twice more volume of GEL to the market in November to December. Excessive supply of GEL, however, results in an upturn in demand for USD, while increased demand for USD negatively affects the GEL exchange rate. All the above-mentioned factors condition the GEL exchange rate devaluation.

The economic team of the government bears responsibility for contraction in investments inflows. Under the state constitutional order, the Georgian government, as a collective governing body, is responsible for all economic developments and consequences. Naturally, it is nonsense to request answers from the Culture Ministry for investments inflows, but the Ministries that have to directly manage the improvement of investments environment, GDP growth, fiscal policy and so on, must bear responsibility for the negative macroeconomic results at the end of 2013 and 2014.

Nodar Khaduri

Minister of Finance of Georgia

 

According to Finance Minister Nodar Khaduri,  the fulfillment of the 2014 budget is not in danger.

The Finance Minister announced  while presenting a report about the Finance Ministry’s two-year activities at the Old Tbilisi hotel today.

In the words of Finance Minister Nodar Khaduri, questions about the GEL  fluctuations are beyond his competence.

“I can tell you one thing; I cannot go beyond the competence of the Ministry of Finance. The budget has zero impact on the exchange rate,” – the Minister told reporters after presenting a report about his Ministry’s two-year activities.

When asked whether this means that he can’t claim responsibility for the exchange rate fluctuations, the Minister advised journalists to read the legislation. In addition, the Minister did not specify whether he thinks that the national bank made a mistake or not.

“The Ministry of Finance does not have a competence to assess activities of other agencies,” – said Nodar Khaduri and refrained from answering additional questions.