The draft of the budgetary amendments, submitted by the government to the Parliament for consideration, does not envisage appropriate changes that would help offset possible further downward pressure on the national currency lari, the National Bank of Georgia (NBG) said.
The Georgian Central Bank said in its written opinion about the proposed amendments that “significant” cuts in budgetary expenditures, especially in current spending, “and/or using tax mechanisms” as recommended by the IMF should be applied if lawmakers aim to offset any further possible pressure on the lari.
The lari has been mostly stable for about a month, hovering around 2.25 per U.S. dollar, 28% weaker than in November 2014, when lari started depreciating due to the strengthening of the U.S. dollar and the decline of external earnings in the form of reduced exports and remittances.
“Current spending in the state budget will be increased by GEL 15 million and capital spending will be cut by GEL 55 million. In the consolidated budget, the decline in capital spending significantly outpaces the decline in current spending,” the Central Bank said in its written opinion submitted to the Parliament.
“Expenditures should be cut mostly at the expense of current spending,” it said.
“Lawmakers have voiced concerns for multiple times this year over depreciation of lari, which had an adverse effect on people and entities having loans in U.S. dollars. Therefore, if the goal of the Parliament is to ease the loan burden caused by lari depreciation or to offset further downward pressure on lari, appropriate changes should be made in the [budget], which are not envisaged by the proposed draft of the budgetary amendments,” the Central Bank said.