Draft law on state budget for 2015 conforms to the medium term tasks defined by government fiscal policy. In particular, draft law envisages substantial increase in funding for prioritized sectors. Namely, funding for regional development, infrastructure and tourism will be increased by 139 million GEL; accessible health care and social security- 98 million GEL; education, science and training programs-59 million GEL. Also draft law on state budget for 2015 envisages increase in operational and overall balance and decrease in fiscal balance.
State Budget Receipts for 2015
- Forecasts for years 2014 and 2015 based on "Basic Data and Directions for 2015 -2018" (BDD) document which is enclosed to the draft budget law are consistent with the projections from alternative sources
- Draft Law on State Budget for 2015 envisages increase in state budget receipts by 295 million GEL (3%) over 2014 year. Increase in receipts are projected to be driven by tax revenues by 611 million GEL (8%). However, with regard to incurrence of liabilities total budgetary receipts are projected to be declined by 311 million GEL. Based on the Draft Law on State Budget for 2015, disposal of nonfinancial and financial assets amounts to 80 and 70 million GEL, respectively.
- As for the tax revenue estimates envisaged by the draft budget law for 2015, total amount for 2015 will be increased by 9.4% over 2014 year. However, to properly examine presented projections, analysis should not only focus on approved plan for 2014 but also recent mobilization trends. Based on existing execution trends and extrapolation method, PBO estimates tax revenues for current year. PBO projects increase in tax revenues for 2015 by 7.5% that can be deemed as realistic. However, it is worth to evaluate dynamics of the components of tax revenues. Namely, draft budget law for 2015 envisages increase in profit tax by 14.2% that needs further justification. With the assessment made by PBO, considering current trends, draft budget law projections of VAT and excise duties bases on conservative view.
- In order to properly evaluate planned value of tax revenues, PBO calculated projected tax revenues based on various macroeconomic forecasts. In particular, projections were calculated based on three different scenarios. Based on the mobilization tendency for 8 month of 2014, PBO projected total tax revenues at a level of 7,684 million GEL that exceeds to planned value approved by draft budget law by 1.3%.
- The following report presents sensitivity analysis of tax revenues. In particular, how the change of projected macroeconomic aggregates will affect the tax revenues. Based on PBO's assessment, 1 % positive deviation of real GDP growth rate and inflation (independently) will result in 2.1-2.2% positive deviation of tax revenue from its planned amount, while 0.5% positive deviation will result-1.7%, respectively. Even 1% negative deviation of real GDP growth rate and inflation rate will result positive deviation of tax revenue by 0.5%, while 0.5% negative deviation will result-0.8%, respectively.
- According to the draft budget law for 2015, projected amount of other revenues in 2015 will decrease by 65 million GEL. In particular, revenues from dividends are declined by 50 million GEL. It is worth to consider that execution level of dividends are determined by 0.2% for 8 month 2014.
State budget expenditures for 2015
- Draft law on state budget for 2015 envisages increase in total budget expenditures by 270 million GEL (3%). Analysis of the components of budget expenditures reveals that expenses and acquisition of nonfinancial assets will increase by 5% and 4%, respectively. Acquisition of financial assets will increase by 75 million GEL.
- Based on the draft law on state budget for 2015 increase in allotments are determined for 24 spending agencies (4 new spending agencies); decrease in allotments are determined for 6 spending agencies, the same amount of allotments are determined for 23 spending agencies.
- Allotments will be remained at the same level or declined in 2015 for programs and sub-programs that are characterized by the low level of execution (particularly, execution for 8 month is lower to the approved budget for 9 month by 30%).
- In line with the draft law on state budget for 2015 general purpose of state expenses will be reduced by 43 million GEL. Regarding to the analysis of the components of general purpose of state expenses, service and repayment of external liabilities will be reduced by 175 million GEL, while service and payment of domestic liabilities will be increased. Transfers to the autonomous republics and local authorities amounts 850 million GEL that exceeds planned value of the current year by 54.1 million GEL. Fund of projects implemented in regions of Georgia is determined by 300 million GEL that exceeds to the planned volume of the current year by 50 million GEL. Based on the draft budget law for 2015 reserve fund of president remains on the level of 5 million GEL, while reserve fund for goverment increases by 20 million GEL and amounts 70 million GEL.
Dynamics of liabilities
- Draft law on State Budget 2015 envisages receipts from incurrence of liabilities for 2015 at the level of 1,320 million GEL, exceeding the current year plan by about 19.3%. The growth of this component of revenues is mainly attributed substantial increase of incurrence of domestic liabilities component (securities, except for the stocks) and external liabilities by 200 million GEL and 116 million GEL, respectativelly. Draft law on the state budget 2015 envisages decrease of the payment of liabilities by 188 million GEL. Decline of this componenets is mainly projected by substantial decrease of payment of external liabilities.
- According to the draft budget law incurrence of domestic liabilities (securities other than shares) amounts 400 million GEL. Namely, based on the existing practice of accounting, envisaged net incurrence of domestic liabilities at the level of 400 million GEL implies issuance of treasury obligations and liabilities in amount of 897 million GEL and repayment for 497 million GEL.
- Based on the draft budget law, public debt as a % of GDP is increased from 34.7 to 35.6%. However, external debt as a % of GDP decreases from 27.2 % to 26.8%.
Dynamics of Key Fiscal Indicators
- Drat law on the state budget for 2015 envisages increase in operational as well as overall balance of the state budget that can be deemed as a desirable trend. Operational balance as a % of GDP will be increased from -3.0% to -2.0%. In addition, further emphasis should be placed on peculiarities of budget deficit calculation. In particular, according to the IMF Government Finance Statistics Manual (GFSM) 1986, consolidated budget deficit of general government operations amounts 3.9% and 2.9%/3%, in 2014 and 2015 respectively. Consequently, projected balance complies 3% limit requirements outlined in the Economic Freedom Act.
- Amendment in budget codex can be deemed positively as it considers providing information about fiscal risks as enclosed documents to the State Budget Law. According to the international experience , fiscal risks refer to the possibility of deviations in fiscal variables from what was expected at the time of the budget of other forecast. Sources of risk include various shock to macroeconomic variables as well as call on several types of contigent liabilities. In many instances, failure to disclose and prepare for such risks has caused additional government obligations, larger public debts and occasionaly, refinancing difficulties. Documents enclosed to the Draft Budget Law include forecasts based on the baseline macroeconomic scenario. However, those documents do not provide forecasts based on the alternative scenarios as well as information about the fiscal risks. It is notewortly that based on the International Monetary Fund research, fiscal risks transparency is associated with better sovereign bond rating and greater access to international capital markets.