Is the UNM Predicted Budgetary Crisis in Sight?

17 January, 2013

At a January 15, 2013 press-conference Vano Merabishvili, Secretary General of the United National Movement (UNM), warned of an impending budgetary crisis. Below is our examination of the UNM arguments. UNM Secretary General said:

A budgetary crisis is setting in, signaled by decrease in tax revenues.

Our analysis of the state budget of the past 3 months and 2013 showed no signs of budgetary crisis: tax revenues in 2013 are set to increase by GEL 620 million. According to Geostat, budget revenues in November 2012 increased by around GEL 20 million against October 2012.

There is a significant increase in outstanding liabilities businesses across the country owe to one another.

The Georgian Revenue Service is not collecting information on either accounts payable or accounts receivable: tax payers file their profit rather than profit and loss statement and balance sheet with the tax authority, which leaves us wondering what evidence prompted the UNM to the conclusion. If UNM warning of a significant increase in outstanding liabilities businesses owe to one another is based on isolated cases of arrears, the anecdotal evidence cannot indicate a change in outstanding liabilities businesses across the country owe to one another.

The government lapsed into the old practice of taxing in advance, which was widely used under Shevardnadze.

Formerly, businesses were indeed taxed in advance, including under the UNM government. Should the UNM Secretary General have any information on the practice continued by the new government we believe the information should be made public.

There are signs of economic slowdown, signaled by export and import as well as output figures and domestic trade on the decline.

Economic growth did indeed slow down by 2.6 percentage points in November against October 2012, while both export and import have been on the decline since September 2012. This said, there is no linear correlation between the rate of economic growth and budget revenues: slowdown in economic growth may be caused by a drop in foreign direct investments, developments outside the country, political uncertainty, etc. As for the Secretary General’s claim that output figures and domestic trade are on the decline, we believe in the absence of Q4 data, it is impossible to say with any certainty that either output figures or domestic trade is on the decline.

Author: Mikheil Kukava