The government submitted the first draft of its 2021 budget to parliament, together with the medium-term forecasts for 2021-24. It must pass three parliamentary hearings before it becomes law, and changes to the first draft estimates are in practice very frequent. Given parliamentary elections on October 31, 2020, the final draft will be discussed by a new parliament.
The MOF (Ministry of Finance) forecasts growth to rebound to 5.0% in 2021. The draft budget sets the GDP deflator at 4.0% in 2021.
Capital expenditures are set to increase by 22.8% y/y to 8.3% of GDP in 2021, supporting growth. Current expenditures are set to decrease by 5.2% y/y to 22.5% of GDP in 2021 from 25.9% in 2020, however is subject to revisions in final draft based on MOF.
Fiscal deficit is set at 5.1% of GDP, however the need for further anti-crisis fiscal stimulus in 2021 expected to widen the fiscal deficit to 5.5% of GDP versus 5.1% in the initial budget document, in our view.
Explanatory note to the budget states that the final parameters will be more accurate after incorporating discussions with the IMF in October, updated world economic forecasts by the IMF, and taking into account the need for additional support to the economy.
We believe that outcome of the elections will not impact fiscal consolidation path considering Georgia’s track record, fiscal rule and ongoing IMF program. Government plans to achieve 3.0% of GDP fiscal deficit from 2023, as law allows the deficit to exceed the cap – 3% of GDP – for only 3 years.
Government plans to repay US$ 500mn Eurobonds and also reduce net domestic debt by GEL 855mn y/y in 2021. As a result, public debt is projected to decrease from 57.9% of GDP in 2020 to 55.9% in 2021.
